Fiscal Sustainability and the Fiscal Reaction Function for South Africa

Author/Editor: Charl Jooste ; Alfredo Cuevas ; Ian C. Stuart ; Philippe Burger
Publication Date: March 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: How does the South African government react to changes in its debt position? In investigating the question, this paper estimates fiscal reaction functions using various methods (OLS, VAR, TAR, GMM, State-Space modelling and VECM). The paper finds that since 1946 the South African government has ran a sustainable fiscal policy, by reducing the primary deficit or increasing the surplus in response to rising debt. Looking ahead, the paper considers the use of fiscal reaction functions to forecast the debt/GDP ratio and gauging the likelihood of achieving policy goals with the aid of probabilistic simulations and fan charts.
Series: Working Paper No. 11/69
Frequency: Biannually
Subject(s): Public debt | Economic growth | Economic models | Fiscal sustainability

Author's Keyword(s): Fiscal reaction function | public debt | deficits.
Publication Date: March 01, 2011
ISBN/ISSN: 9781455227105/1018-5941 Format: Paper
Stock No: WPIEA2011069 Pages: 27
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