Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243403 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
WIDER Working Paper No. 2021/77
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
The aim of this paper is to assess South Africa's fiscal multiplier across different states of the economy, with a focus on the financial accelerator mechanism of fiscal policy shocks, by estimating impulse response functions from both linear and non-linear local projections. The model finds evidence of strong business cycle effects such that, while the average multiplier is below 0.5, it reaches 1.2 during recessions and that, while credit volume diminishes during periods of positive output gap, it expands otherwise. Results suggest that a fiscal expansion crowds out private economic activity in good times only, while it holds a positive balance-sheet effect on liquidity-constrained agents during bad times. Evidence of a state-dependent financial accelerator mechanism of fiscal expansion is confirmed by the positive response of the Financial Times Stock Exchange/Johannesburg Stock Exchange All-Share Index during times of slack.
Subjects: 
fiscal multiplier
local projections
state-dependent multiplier
credit
South Africa
JEL: 
C32
E44
E62
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-015-3
Document Type: 
Working Paper

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