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Determinants of public debt in South Africa: A Regime-Switching Approach

Hlongwane, Nyiko Worship and Daw, Olebogeng David (2022): Determinants of public debt in South Africa: A Regime-Switching Approach. Forthcoming in: International Journal of Economics and Finance Studies , Vol. 14, No. 01 (30 May 2022)

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Abstract

The study investigates the determinants of public debt in South Africa. There is a problem of increasing public debt in South Africa accompanied with poor economic growth, high unemployment, high inequality, and proportionately high government spending. The study utilises time series data spanning for the period from 1990 to 2020 collected form secondary online data sources, that is, the South African Reserve Bank, Quantec Easy Data, Statistics South Africa, and the World Bank. The study employed a Simple Switching Regression Model and Granger Causality test to investigate the determinants of public debt in South Africa. Empirical results revealed that government deposits, business confidence, consumer prices inflation, government revenue and unemployment are significant determinants of public debt in both Regime 1 and 2. Government expenditure was found to be an insignificant determinant of public debt in Regime 2 while Gini-coefficient is an insignificant determinant of public debt only in Regime 1. Granger causality revealed that public debt has a causality effect on public debt. The study provided recommendations such as reducing heavy dependency on public debt to finance fiscal stimulus in South Africa.

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