Work

Intergenerational burden of debt-financed fiscal expansion: an Overlapping Generations model with Markov-switching regimes evidence from South Africa

Year: 2026

Type: article

Abstract: This paper examines the intergenerational and distributional effects of debt-financed fiscal policy in South Africa, comparing immediate versus delayed fiscal consolidation. Using an Overlapping Generations (OLG) model with Markov-switching fiscal regimes calibrated to 1960–2020 South African data, we incorporate age-specific productivity, regime-dependent capital shares, and fiscal rules. Delayed fiscal consolidation reduces lifetime consumption for post-2000 cohorts by over 15%, while early cohorts gain modestly. Immediate fiscal consolidation preserves capital and mitigates intergenerational distortions. Fiscal consolidation that are regressive: low-income households face larger losses, and delays raise the Gini coefficient from 0.650 to 0.695. Timing interacts with regime dynamics, revealing nonlinear trade-offs between short-run stimulus and long-run sustainability. This is the first systematic assessment of fiscal policy timing in South Africa with regime uncertainty and intergenerational welfare measures.

Source: Economics of Governance

DOI: 10.1007/s10101-026-00380-4

Author: Eugene Msizi Buthelezi

Institution: University of the Free State

Language: English

Topic: Fiscal Policies and Political Economy

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,190

Funder: Universiteit van die Vrystaat