THE IMPACT OF FISCAL POLICY ON ECONOMIC GROWTH AND DEVELOPMENT IN SOUTH AFRICA

Abstract

The democratic government of South Africa has implemented a variety of fiscal policies aimed at promoting economic growth. However, numerous scholars argue that the country's growth over the past few decades remains unconvincing. Empirical studies highlight that poverty levels remain alarmingly high across the majority of the country’s provinces. To further explore this issue, this research investigates the relationship between fiscal policy, economic growth, and development in South Africa from 1970 to 2021. The autoregressive distributed lag (ARDL) model is employed due to its capacity to handle two orders of integration (at level and first difference). The findings indicate that fiscal policy has a significant impact on both economic growth and development in South Africa. Long-term growth is supported by public sector investment and tax revenue, whereas government consumption expenditure and budget deficits hinder economic progress. Economic development, as measured by the human development index, is positively influenced by public sector investment in infrastructure and education, highlighting their crucial role in fostering human capital. However, inefficient public expenditure adversely affects both growth and development. These results suggest that effective fiscal policy, through strategic public sector investment and increased tax revenue, can foster long-term growth and development in South Africa by enhancing infrastructure and human capital. In contrast, excessive government consumption and budget deficits restrict sustainable growth by displacing private sector investment.