Measuring the impact of structural reforms and investment policies: A DSGE model for
South Africa
This paper aims at quantifying the macroeconomic and distributional impacts of product
market reforms and additional public investment using a DSGE model. The model reflects
specific features of the South African economy. Tradable and non-tradable product
markets are modelled separately, and a segmented labour market is designed to reproduce
the labour market duality in South Africa between skilled and unskilled workers. The
role of public investment on total factor productivity and its financing modality
are taken into allowing the quantification of the net benefits of reforms.
Our results show that enhancing competition in the non-tradable sector has a short
run recessionary impact while deregulating the tradable sector is expansionary. Overall,
the latter has a bigger impact on GDP. From a distributional perspective, a product
market reform in both sectors benefits all income deciles. Finally, additional public
infrastructure investment, either financed by raising VAT or capital income tax, increases
GDP in the short-term less than product market reform in the tradable sector but is
more expansionary in the long run, so a combination of both reforms would boost living
standards.
Published on December 22, 2022
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