How sustainable are fiscal budgets in the Kingdom of Swaziland?

Phiri, Andrew (2018): How sustainable are fiscal budgets in the Kingdom of Swaziland?

Abstract

The recently experienced Swazi fiscal crisis of 2011 has facilitated the need for an academic probe into the sustainability of fiscal budgets in the Kingdom. Against the absence of empirical evidence evaluating the sustainability of Swazi fiscal budget, our study fills the hiatus by econometrically evaluating the sustainability of the fiscal budget of the Swazi economy between 1999 and 2016. Our empirical study depends on a combination of linear and asymmetric unit root and cointegration empirical procedures to attain this objective. In reviewing the obtained results, the evidence obtained from the linear econometric frameworks is inconclusive whereas the results from the more vigorous asymmetric models point to the unsustainability of Swazi fiscal budget over both the short and long-run. Important policy implications for Swazi fiscal policymakers are drawn from the analysis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal budget; Fiscal Crisis; Swaziland; SACU; KSS nonlinear unit root test; Fourier function; nonlinear autoregressive distributive lag model.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; H - Public Economics > H6 - National Budget, Deficit, and Debt > H61 - Budget ; Budget Systems; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus

References

Afonso A. and Rault C. (2009), “Bootstrap panel granger-causality between government spending and revenue in the EU”, Economics Bulletin, 29(4), 2542-2548.

Arestis P., Cipollini A. and Fattouh B. (2004), “Threshold effects in the US budget deficit”, Economic Inquiry, 42(2), 214-222.

Athanasenas A., Katrakilikdis C. and Trachanas E. (2014), “Government spending and revenues in the Greek economy: Evidence from nonlinear cointegration”, Empirica, 41(2), 365-376.

Baffes J. and Shah A. (1994), “Causality and co-movement between taxes and expenditures: Historic evidence from Argentina, Brazil and Mexico”, Journal of Development Economics, 44, 311-331.

Baharumshah A., Jibrilla A., Sirag A., Ali H. and Muhammad I. (2016), “Public revenue, expenditure nexus in South Africa: Are there asymmetries”, South African Journal of Economics, 84(4), 520-537.

Bajo-Rubio O., Diaz-Roldan C. and Esteve V. (2004), “Searching for threshold effects in the evolution of budget deficits: An application to the Spanish case”, Economic Letters, 28, 239-234.

Basdevant O., Baba C. and Mircheva B. (2011), “Macroeconomic vulnerabilities stemming from the global economic crisis: The case of Swaziland”, IMF African Department Paper No. 11/07, December.

Basdevant O., Benicio D., Mircheva B., Mongardini J., Verdier G., Yang S. and Zanna L. (2011), “The design of fiscal adjustment strategies in Botswana, Lesotho, Namibia, and Swaziland”, IMF Working Paper No. 11/266, November.

Basdevant O., Forrest E. and Mircheva B. (2013), “Restoring sustainability in a global environment: Options for Swaziland”, IMF African Department Paper No. 13/1, February.

Bolat S. (2014), “The relationship between government revenues and expenditures: Bootstrap panel granger causality analysis on European countries”, The Economic Research Guardian, 4(2), 58-73.

Brixiova Z., Ncube M. and Bicaba Z. (2013), “Skills and youth unemployment in Africa: Analysis with evidence from Swaziland”, World Development, 67, 11-25.

Carneiro F., Joao R. and Boubacar S. (2005), “Government revenues and expenditures in Guinea-Bissau: Causality and cointegration”, Journal of Economic Development, 30(1), 107- 117.

Caner and Hansen B. (2001), “Threshold autoregression with a near unit root”, Econometrica, 69, 15555-1596.

Cheng B. (1999), “Causality between taxes and expenditures: Evidence from Latin American countries”, Journal of Economics and Finance, 23, 1984-192.

Chortareas G., Kapetanios G. and Uctum M. (2008), “Nonlinear alternatives to unit root tests and public finances sustainability: Some evidence from Latin America and Caribbean countries”, Oxford Bulletin of Economics and Statistics, 70(5), 645-663.

Cuestas J. and Staehr K. (2013), “Fiscal shocks and the budget balance persistence in the EU countries from Central and Eastern Europe”, Applied Economics, 45(22), 3211-3217.

Cunado J., Gil-Alana L. and Perez du Garcia F. (2004), “Is the US fiscal budget deficit sustainable? A fractional integrated approach”, Journal of Economics and Business, 56, 501-526.

Debly T. (2014), “”Culture and resistance in Swaziland”, Journal of Contemporary African Studies, 32(3), 284-301.

Dlamini M. (2003), “Administrative reform and public sector management programme (PSMP) in Swaziland”, African Journal of Public Administration and Management, 14(1-2), 24-32.

Dlamini M. (2005), “Public enterprises and the challenge of privatization in Swaziland”, African Journal of Public Administration and Management, 16(2), 42-62.

Eita J. and Mbazima D. (2008), “The causal relationship between government revenue and expenditure in Namibia”, Journal of Economic and Financial Sciences, 2, 175-186.

Enders W. and Granger C. (1998), “Unit root tests and asymmetric adjustment with an example using the term structure of interest rates”, Journal of Business and Economic Statistics, 16(3), 304-311.

Enders W. and Lee J. (2012), “The flexible Fourier form and Dickey-Fuller type unit root tests”, Economic Letters, 117, 196-199.

Enders W. and Siklos P. (2001), “Cointegration and threshold adjustment”, Journal of Business and Economic Statistics, 19(2), 166-176.

Engle R. and Granger C. (1987), “Co-integration and error correction: Representation, estimation and testing”, Econometrica, 55(2), 251-276.

Ewing B. and Payne J. (1998), “Government revenue-expenditure nexus: Evidence from Latin America”, Journal of Economic Development, 23(2), 57-69.

Ewing B., Payne J., Thompson M. and Al-Zoubi O. (2006), “Government expenditures and revenues: Evidence from asymmetric modelling”, Southern Economic Journal, 73, 190-200.

Garcia S. and Henin P. (1999), “Balancing budget through tax increases or expenditure cuts: Is it neutral?”, Economic Modeling, 16, 591-612.

Ghartey E. (2010), “Cointegration and causal relationship between taxes and spending in Kenya, Nigeria and South Africa”, International Economic Journal, 24(2), 267-282.

Gibb R. (2006), “The new Southern African Customs Union Agreement: Dependency and democracy”, Journal of Southern African Studies, 32(3), 583-603.

Holmes M., Otero J. and Panagiotidis T. (2010), “Are EU budget deficits stationary?”, Empirical Economics, 38(3), 767-778.

Hope K. (2016), “The corruption problem in Swaziland: Consequences and some aspects of policy to combat it”, Journal of Developing Societies, 32(2), 130-158.

Humayun K. and Adelopo I. (2012), “Corporate governance disclosure practices by Swaziland public enterprises”, African Journal of Business Management, 6(24), 7136-7148.

Johansen S. (1991), “Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models”, Econometrica, 59(6), 1551-1580.

Kapetanios G., Shin Y. and Snell A. (2003), “Testing for a unit root in the nonlinear STAR framework”, Journal of Econometrics, 112(2), 359-379.

Karim Z., Asri N., Antoni A. and Yusoff Z. (2006), “The relationship between federal government revenue and spending: Empirical evidence from Asean-5 countries”, Journal Ekonomi Pembangunan, 11, 91-113.

Koren S. and Stiassny A. (1998), “Tax and spend or spend and tax? An international study”, Journal of Policy Modeling, 20(2), 163-191.

Lau E. and Baharumshah A. (2009), “Assessing the mean reversion behaviour of fiscal policy: the perspective of Asian countries”, Applied Economics, 41(15), 1939-1949.

Liu T., Su C. and Jiang X. (2014), “Is fiscal policy stationary in China? A regional study by local government”, Economic Modelling, 37, 492-499.

Mafusire A. (2015), “Assessing Swaziland’s fiscal sustainability and policy options”, Economics Research International, 1-10.

Magazzino C. (2014), “The relationship between revenue and expenditure in the ASEAN countries”, East Asia, 31(3), 203-221.

Masuku B. and Limb P. (2016), “Swaziland: the struggle for political freedom and democracy”, Review of African Political Economy, 43(149), 518-527.

Mehrara M., Pahlavani M. and Elyasi Y. (2011), “Government revenue and government expenditure nexus in Asian countries: Panel cointegration and causality”, International Journal of Business and Social Science, 2(7), 199-207.

Mongardini J., Benicio D., Fontaine T., Pastor G. and Verdier G. (2011), “In wake of the global economic crisis: Adjusting to lower revenue of the Southern African Customs union in Botswana, Lesotho, Namibia and Swaziland”, IMF African Department Paper No. 11/01, January.

McKinnon J. (1996), “Numerical distribution functions for unit root and cointegration test”, Journal of Applied Econometrics, 11(6), 601-618.

Ono H. (2008), “Searching for nonlinear effects and fiscal sustainability in G7 countries”, Applied Economics Letters, 15(6), 457-460.

Owoye O. (1995), “The causal relationship between taxes and expenditure in the G-7 countries: Cointegration and error correction models”, Applied Economic Letters, 2, 19-22.

Paleologou S. (2013), “Asymmetries in the revenue-expenditure nexus: A tale of three countries”, Economic Modelling, 30, 52-60.

Payne J., Mohammadi H. and Cak M. (2008), “Turkish budget deficit sustainability and the revenue-expenditure nexus”, Applied Economics, 40, 823-830.

Phiri A. (2018), “Asymmetries in the revenue-expenditure nexus: New evidence from South Africa”, Empirical Economics, (forthcoming).

Pesaran M., Shin Y. and Smith R. (2001), “Bounds testing approaches to the analysis of levels relationships”, Journal of Applied Econometrics, 16, 289-326.

Rodrigues P. and Taylor A. (2012), “The flexible Fourier form and local GLS de-trending unit root tests”, Oxford Bulletin of Economics and Statistics, 74(5), 736-759.

Saunoris J. and Payne J. (2010), “Tax more or spend less? Asymmetries in the UK revenue-expenditure nexus”, Journal of Policy Modeling, 32, 478-487.

Shin Y., Yu B. and Greenwood-Nimmo M. (2014), “Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework”, Festsschrift in honor of Peter Schmidt: Econometric Methods and Applications, eds. By R. Sickels and W. Horace, Springer, 281-314.

Simelane H. (2014), “The political economy and the historical trajectory of the Swaziland fiscal crisis, 2010-2011”, Journal of Contemporary History, 39(2), 250-273.

Simelane H. (2016), “Fiscal crisis, social protest and stake violence in Swaziland, 2009-2012”, Journal of Contemporary History, 41(2), 208-228.

United Nations, (2012), “Rapid assessment of the impact of the fiscal crisis in Swaziland”, Mbabane: United Nations.

United Nations, (2016), “Swaziland: Drought”, Country Emergency Situation Report No. 1 Mbabane: United Nations.

Woods D. (2011), “Monarchical rule in Swaziland: Power is absolute but patronage is (for) relative(s)”, Journal of Asian and African Studies, 52(4), 497-513.

Young A. (2011), Do US federal revenues and expenditures respond asymmetrically to budget disequilibria?, Applied Economics Letters, 18, 749-752.

Zapf M. and Payne J. (2009), “Asymmetric modelling of the revenue-expenditure nexus: Evidence from aggregate state and local government in the US”, Applied Economics Letters, 16(9), 871-876.