Towards an effective fiscal stimulus: Evidence from Botswana

While there is a general agreement on the effectiveness of fiscal stimulus, there is no consensus on which stimulus is better. To address this concern, this paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to propose a fiscal stimulus that Botswana can adopt given the slowing mining...

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Bibliographic Details
Published inCogent economics & finance Vol. 8; no. 1; pp. 1 - 19
Main Authors Timuno, Sayed O. M, Eita, Joel Hinaunye
Format Journal Article
LanguageEnglish
Published Abingdon Taylor & Francis 2020
Cogent
Taylor & Francis Ltd
Taylor & Francis Group
Subjects
Accumulation
Balance of trade
Botswana
Budget deficits
Consumption
Developing countries
DSGE
Econometrics
Economics
Employment
Equilibrium
Fiscal policy
fiscal stimulus
Government revenue
Government spending
Labor
Labor market
LDCs
Macroeconomics
Mineral reserves
Mining
Monetary policy
Productivity
Revenue sharing
Stimulus
Tax cuts
Tax reform
Taxation
Use taxes
Botswana
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Summary:While there is a general agreement on the effectiveness of fiscal stimulus, there is no consensus on which stimulus is better. To address this concern, this paper uses a Dynamic Stochastic General Equilibrium (DSGE) model to propose a fiscal stimulus that Botswana can adopt given the slowing mining productivity. The results suggest that short-run macroeconomic stabilisation can be achieved through a cut in labour taxes. This fiscal stimulus generates larger growth multipliers and contributes relatively more employment compared to a cut in consumption tax and increases in government spending. The findings also revealed that a cut in labour taxes improves trade balance, resulting in a greater accumulation of international reserves and has no Dutch disease effects. These results suggest the need for a labour tax policy reform. These results also offer some policy options for other developing countries, which may face similar fiscal risks in future.
ISSN:2332-2039
2332-2039
DOI:10.1080/23322039.2020.1790948