Browsing by Author "Kemp, Johannes Hermanus"

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    Essays on fiscal policy in South Africa
    (Stellenbosch : Stellenbosch Universit, 2020-03) Kemp, Johannes Hermanus; Du Plessis, Stan, 1972-; Siebrits, F. K. (F. Krige); Liu, Guangling; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH ABSTRACT : This study is primarily motivated by the renewed interest in the effects of fiscal policy on general macroeconomic outcomes and macroeconomic stability since the 2008/09 Global Financial Crisis. In the wake of the crisis, it became apparent that both the standard and unconventional monetary policy toolkits were insufficient to stimulate global demand to the degree required. As such, there was renewed debate on the role of discretionary fiscal policy in stabilising the global economy. In light of the resurgence in interest on the effects of fiscal policy on broader macroeconomic outcomes, as well as the relative dearth of research on the topic in South Africa, this study investigates several aspects of the economy-wide transmission of fiscal policy decisions within the South African context. Chapter 2 provides microeconomic evidence of the behavioural responses of individual taxpayers to changing tax rates. The magnitude of this behavioural response is central to the formulation of tax and transfer policies. Using a new dataset comprising confidential tax return data, the elasticity of taxable income (ETI) is estimated. The estimate lies close to the mid-point of estimates found in the literature. Furthermore, it is shown that behavioural responses to changing tax rates are concentrated in higher-income groups. Finally, through embedding the ETI estimate in an optimal tax framework it is shown that there is little scope for raising marginal rates. Chapter 3 broadens the scope and investigates the transmission of unanticipated fiscal policy innovations to broader macroeconomic aggregates, including GDP and private consumption. A key aim of the chapter is to estimate fiscal multipliers. Using a variety of identification approaches and model specifications, it is found that, while the size of budgetary multipliers is sensitive to the identification strategy and modelling approach used, government spending multipliers are positive and smaller than one. Tax multipliers are found to be large and distortionary. Chapter 3 estimates fiscal multipliers based on empirical reduced-form models. A different approach to the identification of fiscal shocks and their transmission to macroeconomic outcomes is through estimated dynamic stochastic general equilibrium (DSGE) models. To that end, Chapter 4 specifies and estimates an open-economy fiscal DSGE model for the South African economy. While fiscal multipliers are generally in line with estimates from Chapter 3, the size of budgetary multipliers depends crucially on the specific policy rule that is used to stabilise debt, i.e. the functional form of the fiscal rules. The specific features embedded in the model, including the specification of nominal rigidities and consumer behaviour, also play a vital role in determining the size of the fiscal multipliers.