Abstract:
In addition to the conventional linear cointegration test, this paper tests the asymmetry relationship between
fiscal revenue and expenditure, by making a distinction between the adjustment of positive (budget surplus)
and negative (budget deficit) deviations from equilibrium. The analysis uses quarterly data for South Africa.
The paper reveals that government authorities in South Africa are more likely to react more quickly when
the budget is in deficit than when in surplus, and that the stabilisation measures used by government are
fairly neutral at low deficit levels; that is, at deficit levels of 4 per cent of GDP and below. We conclude that
the assumption that adjustment towards equilibrium is always present and of the same strength under all
circumstances, is not valid in the case of fiscal data on South Africa; and that that fiscal sustainability in
South Africa has been attained at the expense of a reduction in the ratio of expenditure to GDP on
education, and a relatively constant ratio of expenditure to GDP on health. The paper noted that a priori one
would expect that such a decline in the allocations to sectors which could stimulate growth and which in turn
could generate future revenue, may pose a threat to the accumulated fiscal space. In South Africa the main
fiscal challenge, therefore, is to find ways through which the recent gains in fiscal solvency can be
consolidated.
