A Partial General Equilibrium Analysis of Fiscal Policy Injection on Poverty and Inequality in South Africa

Abstract

This study employs a partial general equilibrium approach calibrated on the Social Accounting Matrix (SAM) and a contemporaneous dynamic computable general equilibrium (CGE) model to assess the effect of expansionary fiscal policy on economic growth, income inequality, poverty, employment and inequality reduction in South Africa. The simulation results reveal that expansionary fiscal policy i) benefits rich ‘white’ households the most and poor ‘coloured’ households the least ii) improves adult employment more than youth employment iii) improves employment in urban areas as proposed to employment in rural areas iv) has a very small effect on improving economic growth and reducing the Gini coefficient v) benefits ‘well-off’ households more than it does ‘poor’ households vi) promotes ‘low-skilled’ employment more than it does for ‘high-skilled’ labourers. Associated policy implications based on our findings are also discussed.

Keywords

• social accounting matrix (sam); computable general equilibrium (cge); new development plan (ndp); inequality; poverty