Fiscal policy commodity price shocks

How does fiscal policy affect the response of real GDP and unemployment to global shocks in South Africa? This question is relevant for a country with high structural unemployment; prolonged periods of low economic growth; and tax revenue that is vulnerable to commodity shocks. To answer this question, we employ both an empirical and theoretical approach. We contribute to the literature and the policy debate in two ways. Firstly, we model the effect of commodity shocks to corporate income tax revenue, and thus to the effect on South Africa's fiscal space. Secondly, we model the South African labour market by accounting for compelling features namely: (i) hysteresis to explain the exceptionally and persistently high level of unemployment prevailing in the economy, and (ii) a Susceptible-Exposed-Infected-Recovered epidemiological framework to model the disruptions in the labour force caused by the Covid-19 pandemic.

Funding for this research is provided by the South African National Treasury through UNU-WIDER.