Towards an effective fiscal stimulus: Evidence from Botswana

Sayed O.M. Timuno, Joel Hinaunye Eita

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Article number1790948
JournalCogent Economics and Finance
Volume8
Issue number1
DOIs
Publication statusPublished - 1 Jan 2020

Keywords

  • Botswana
  • C61
  • DSGE
  • E62
  • H30
  • fiscal policy
  • fiscal stimulus

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'Towards an effective fiscal stimulus: Evidence from Botswana'. Together they form a unique fingerprint.

Cite this