Should South Africa adopt numerical fiscal rules?

Siebrits F.K. ; Calitz E. (2004)


Institutional issues now loom large in the theory and practice of macroeconomic policymaking. South Africa has recently adopted two institutional innovations in monetary policy, namely inflation targeting and constitutional protection of the independence of the central bank. The South Africa fiscal authorities have implemented multi-year expenditure planning, but numerical fiscal rules do not seem to be on the agenda yet. However, the growing popularity of such rules in other countries suggests that they will eventually come under consideration in South Africa as well. The purpose of this article is to stimulate debat e on the potential of numerical fiscal rules at the national-government level in South Africa. In section 1, we introduce the rules-versus-discretion debate and summarise the practical shortcomings of discretionary regimes. Section 2 outlines options for reforms. In section 3, we draw on theory and case studies to compare the effectiveness of numerical fiscal rules and the accountability-enhancing fiscal reforms that are being implemented in South Africa. Against this background, we offer an answer to the question whether or not South Africa should adopt numerical fiscal rules in section 4. Our major conclusion is that the adoption of numerical rules is more likely to do harm than to improve fiscal policymaking in South Africa.

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