Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264359 
Year of Publication: 
2022
Series/Report no.: 
WIDER Working Paper No. 2022/52
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
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 materialized, leaving fiscal consolidation as the second-best solution to achieve fiscal sustainability. We show that the least-cost policy is to impose a time-consistent fiscal policy rule with debt-toGDP as the fiscal anchor and for the intermediate operational objective to be a pre-announced path for real government consumption spending rather than the current nominal expenditure ceiling. This optimal policy result obtains with and without explicit policy coordination between the fiscal and monetary authorities.
Subjects: 
fiscal sustainability
fiscal consolidation
policy coordination
optimal policy
JEL: 
E17
E62
E63
H30
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-183-9
Document Type: 
Working Paper

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