The Impact of Government Debt on Consumption Expenditure in South Africa: A NARDL Approach
Keywords:
Consumption expenditure; government debt; Granger causality; Non-linear Autoregressive Distributed Lag ModelAbstract
This study investigated the impact of economic crises and government debt on consumption expenditure in South Africa, using quarterly time-series data from 1993Q1 to 2020Q4 from the South African Reserve Bank (SARB) and Quantec (Easy Data). The study used both a linear and non-linear autoregressive distributed lag model (ARDL and NARDL). The study’s variables included consumption expenditure, total foreign debt, national government debt, government expenditure, government expenditure for social protection, the fuel levy, value-added tax (VAT), personal income tax, gross domestic product (GDP), and inflation. The NARDL shows that in the short run, national government debt is significant. However, in the long run the variable shows itself to be insignificant. The NARDL also finds, that government expenditure, government expenditure for social protection, and the fuel levy all increase consumption expenditure. Thus, it would be prudent for the government to adopt additional tax strategies to ease pressure on consumers. The study’s Granger causality test shows unidirectional causality from consumption expenditure to all variables, except inflation.
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