South Africa has been experiencing slower growth and deteriorating public finances. In an attempt to mitigate the slowdown, fiscal spending reached 30% of GDP in 2019, rapidly swelling public debt from 26% in 2008 to 63% of GDP in 2019.
Two opposite views on the role of fiscal policy have emerged. On the one hand supply-side constraints and tight fiscal space require debt consolidation, and on the other, low demand and high unemployment allow for non-inflationary stimulus.
This research aims to create better estimates of fiscal multipliers in order to support the design of optimal fiscal actions.
- what has the average value of the multiplier been since 1994, and did it peak during recessions or booms?
- how are the business cycle and credit volume related?
- how does the multiplier behave during a monetary contraction, and is this different during recessions?