{"title":"Fiscal policy in times of fiscal stress (or what to do when r > g)","authors":"","doi":"10.1016/j.jpolmod.2024.07.001","DOIUrl":null,"url":null,"abstract":"<div><p>South Africa runs a primary fiscal deficit and the long-term interest rate on government borrowing, <em>r</em>, is greater than the long-term economic growth rate, <em>g</em>. Without intervention, debt will continue to rise until there is a disorderly fiscal stop. Reforms to raise growth have not materialised, leaving fiscal consolidation as the second-best solution. Using a medium-sized, open-economy, fiscal DSGE model of South Africa, we show that the least cost policy is to impose a time-consistent fiscal policy rule with debt-to-GDP as the fiscal anchor and a pre-announced path for government consumption spending as the intermediate operational objective. This result obtains with and without explicit policy coordination between the fiscal and monetary authorities.</p></div>","PeriodicalId":48015,"journal":{"name":"Journal of Policy Modeling","volume":null,"pages":null},"PeriodicalIF":3.5000,"publicationDate":"2024-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S0161893824000814/pdfft?md5=58f8d30fae06346baed8c18d366b360c&pid=1-s2.0-S0161893824000814-main.pdf","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Policy Modeling","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0161893824000814","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
South Africa runs a primary fiscal deficit and the long-term interest rate on government borrowing, r, is greater than the long-term economic growth rate, g. Without intervention, debt will continue to rise until there is a disorderly fiscal stop. Reforms to raise growth have not materialised, leaving fiscal consolidation as the second-best solution. Using a medium-sized, open-economy, fiscal DSGE model of South Africa, we show that the least cost policy is to impose a time-consistent fiscal policy rule with debt-to-GDP as the fiscal anchor and a pre-announced path for government consumption spending as the intermediate operational objective. This result obtains with and without explicit policy coordination between the fiscal and monetary authorities.
期刊介绍:
The Journal of Policy Modeling is published by Elsevier for the Society for Policy Modeling to provide a forum for analysis and debate concerning international policy issues. The journal addresses questions of critical import to the world community as a whole, and it focuses upon the economic, social, and political interdependencies between national and regional systems. This implies concern with international policies for the promotion of a better life for all human beings and, therefore, concentrates on improved methodological underpinnings for dealing with these problems.