Publisher:
United Nations University World Institute for Development Economics Research, Helsinki, Finland
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....
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ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signature:
DS 248
Inter-library loan:
No inter-library loan
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.
