Is fiscal policy sustainable in South Africa? : an application of the econometric approach

Abstract

The question of fiscal sustainability is very important for adequate macroeconomic management. This paper analyses the sustainability of the government of South Africa’s fiscal policies during the period 1990-2005 using quarterly data. It is found that government revenue, government spending on goods and services, and interest payment are non-stationary but cointegrated. A standard three-variable framework of Vector Error Correction (VEC) model is used to test whether data from the historical process in South Africa are consistent with the intertemporal government budget constraint. The present value constraint (PVC) approach was the main tool used in the empirical analysis. The findings suggest that the PVC hold over the sample period and point to the sustainability of the historical fiscal process.