Abstract
D.Comm.
This thesis endeavoured to assess whether the government can simultaneously
achieve the objectives of sustained economic growth, income redistribution and
fiscal discipline, as stated in the Growth, Employment and Redistribution (GEAR)
policy. The simultaneous realisation of these objectives of the GEAR policy
brings about controversies between the South African government and other
interest groups, such as the trade unions and some academics.
Empirical analysis such as econometrics and computerised general equilibrium
(hereafter referred to as CGE) techniques were used in an attempt to solve the
research question. The Kalman filter technique was applied to model total factor
productivity and to establish the link between social services expenditure and
economic growth in South Africa. The structural vector autoregressive (SVAR)
technique was applied to assess the dynamics of fiscal shocks on output growth
and determine the type of taxes that are distortionary in financing the increase in
social services expenditure.
The study’s main contribution is the application of the CGE technique to assess
whether the above three objectives can be reached simultaneously. A new CGE
model was built, based on the standard CGE model by Thurlow and Van
Seventer (2002). In the new CGE model, some taxes were changed to
endogenous variables instead of exogenous variables or parameters as in the
standard model. The model introduced a number of government macro closure
rules to clear the government balance.
The research lead to the following conclusion: When constraints on employment
are removed across all the labour categories in South Africa, and the government
uses compositional shift of its expenditure to finance the continual increase in
social services expenditure, the three objectives, namely fair redistribution of
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income, fiscal discipline and sustained economic growth, will be reached
simultaneously.
It is recommended that the government fix conditions in the labour market to
remove impediments to employment in South Africa (such as lack of appropriate
skills for specific activities), as this will enable the government to achieve most of
its objectives.