An Empirical Assessment of Fiscal Sustainability in South Africa

Abstract

The aim of this study was to empirically analyse whether the government maintained its public debt position on a sustainable path during the period 1990-2013. Following diagnostic evaluation of unit root and cointegration properties of the time series data, a fiscal reaction function was estimated to examine whether the government’s fiscal policies were consistent with the intertemporal government budget constraint. A typical three-variable framework of the Vector Error Correction Model (VECM) was used in E-views. The computed results confirm that the government maintained a sustainable fiscal policy during the period under review by adjusting the primary deficit or surplus in response to variations in its debt positions.

Keywords: Fiscal sustainability, public debt, primary balance, intertemporal budget constraint