Macroeconomic stimulus packages and income inequality in developing countries: Lessons from the 2007-9 Great Recession for the Covid-19 crisis in South Africa
Alexis Habiyaremye, Peter Jacobs, Olebogeng Molewa & Pelontle Lekomanyane
#2021-006
In 2020, the South African government announced that it was planning to
implement an ambitious macroeconomic rescue package worth about 10% of
the country's gross domestic product (GDP) to cushion the economy from
the socioeconomic impact of Covid-19 lockdown. However, it was unclear
what the likely eects of the package's measures would be on income
growth and employment in the post-crisis recovery period. This paper
uses a fiscal multiplier framework to examine the links between such
packages and patterns of growth, employment and inequality in nine
developing counties during the recovery period following the Great
Recession of 2007- 2009. The findings indicate that countries which
privileged larger fiscal packages enacted through public infrastructure
investments had more favourable outcomes in terms of employment recovery
and preventing the worsening of poverty. Moreover, the implementation of
deficit-financed stimulus packages did not lead to unsustainable debt
levels or persistent in
ation. As South Africa contemplates rolling out
a sizable new infrastructure stimulus package to tow the economy out of
the current crisis, insights from those experiences may provide useful
lessons for building a more equitable and more shock-resilient
post-Covid-19 economy.
Keywords: Monetary policy, fiscal multipliers, wage-led growth, income
distribution, structural reforms
JEL Classification: E12, E24, E25, E52, E62