Towards an effective fiscal stimulus: evidence from Botswana

Sayed O.M Timuno and Joel Eita

MPRA Paper from University Library of Munich, Germany

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 suggests 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.

Keywords: fiscal stimulus; fiscal policy, DSGE; Botswana (search for similar items in EconPapers)
JEL-codes: C61 E62 H30 (search for similar items in EconPapers)
Date: 2020-02-28
New Economics Papers: this item is included in nep-afr, nep-dge and nep-mac
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Journal Article: Towards an effective fiscal stimulus: Evidence from Botswana (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:101377

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