"Successful fiscal adjustments" : empirical evidence from South Africa

From 1973 to 1997 South Africa's fiscal stance has undergone large fluctuations. The primary balance of the general government recorded a surplus of 3.8% of GDP in 1990 and a deficit equivalent to 4.5% of GDP in both 1977 and 1994. This paper identifies ten episodes of fiscal adjustment, defined as a fiscal year during which the primary deficit was reduced by more than 1.5% of GDP. It then assesses the success of these episodes, according to the evolution of the debt ratio two or three years after the adjustment. In South Africa there have been two episodes of successful fiscal adjustment: in 1978 and in 1980. The paper proceeds by analysing the size and the composition of the various fiscal adjustments. It shows that successful fiscal adjustments are generally smaller than unsuccessful ones. On the taxation side, successful adjustments rely mainly on non-tax revenue, whereas unsuccessful ones record large increases in direct taxation. Generally the adjustment is mostly felt on the expenditure side. As in most developing countries, capital expenditure is the main target for cuts. However, the size of the reduction in capital expenditure is smaller in successful adjustments. Furthermore, these adjustments record spending cuts in all categories of expenditure, contrary to unsuccessful contractions. It seems that successful adjustments rely on temporary tax increases and permanent spending cuts.

Grantor dc:publisher.institution

School of Economics

Year dc:date.issued

1998

Author dc:creator

• Duperrut, Jerome

Advisor dc:contributor.advisor

• Abedian, Iraj

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/13893

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/13893