Even though major advances in economic theory and modelling have in some cases furthered our understanding of how the economy works, the system as a whole has become more complex. If policymakers had perfect knowledge about the actual state of the economy, the various transmission mechanisms as well as the true underlying model, monetary intervention would be greatly simplified. In reality, however, the monetary authorities have to contend with considerable uncertainty in relation to the above-mentioned factors. This said, uncertainty has mostly been neglected in both the theoretical and empirical literature focusing on monetary policy analysis. Nonetheless, findings from a review of theoretical literature that does exist on this topic suggest that optimal central banks act more conservatively when faced with uncertainty. Similarly, empirical findings from the literature also favour conservatism. However, there is some evidence to suggest that this is not always the case. These results suggest that central banks do not always act optimally when faced with uncertainty. The limited number of industrial country cases examined prevents any generalised view from emerging. If anything, the literature findings suggest that central bank behaviour differs across countries. This thesis aims to contribute to the empirical literature by studying the effects of uncertainty on monetary policy in the developing country case of South Africa. In simplest terms, the thesis seeks to establish whether or not the South African Reserve Bank (SARB) responded optimally to uncertainty as suggested by theoretical models thereof. To this end, the thesis employs a theoretical model which resembles a structural rule-based approach. The optimal interest rate rule was derived given a set of structural equations relating to demand, the Phillips curve and the real exchange rate. To incorporate uncertainty, it is assumed that the coefficients are dependent on the variances of the exogenous variables, namely inflation, the output gap and the exchange rate. The uncertainty adjusted model allows us to investigate whether monetary policy is more aggressive or passive when uncertainty about the relevant exogenous variable increases. Inflation, output gap and exchange rate uncertainty estimates were derived through GARCH-model specifications related to the structural equations as defined in the theoretical model. The investigation considered both indirect and direct uncertainty effects with a sample period stretching from 1990 to 2011. The findings reported in this thesis provide strong evidence in support of the notion that uncertainty plays a significant role within the South African monetary policy landscape and contributes towards explaining the SARB’s actions. Furthermore, the results suggest that the SARB did in fact act optimally in responding more conservatively to target variable fluctuations on average. Also, the findings could potentially strengthen the case for inflation targeting as a monetary policy regime, as the results indicate a marked decline in the effects of uncertainty under inflation targeting than before. / Economics / D. Com. (Economics)

Objective of the study. This study is about the intergovernmental fiscal relations in South Africa. The primary objective is to review the international experience of fiscal decentralisation with the view to providing answers to the issue of revenue sharing, problems of expenditure and revenue assignment, and the impact of the whole decentralization on the size of the public sector in South Africa. Methodology. The methodology adopted in this study includes (1) a review and comparison of the practise of fiscal decentralisation in four countries, and (2) an econometric investigation into the impact of fiscal decentralisation on the size of the public sector, using time series quarterly data for the period 1993/94 to the second quarter of 1998/99. Regarding the econometric investigation, a single linear regression model including fiscal decentralisation, fiscal collusion, income and population are assumed to influence the size of the public sector. Study Findings. Our analysis provides certain interesting results. First, the countries reviewed tend to assign functions in a manner that is consistent with the public finance theory that functions that are distributive in nature and those that are meant to ensure the country's stability should be reserved exclusively for the federal or national government. Whereas the Australian, Canadian and Brazilian's revenue decentralization show a number of significant taxes that are devolved to the lower levels of government, Germany represents a strong collection at the center. The discrepancy is compensated for by the use of equalization grants in the German model. Second, fiscal decentralisation is found to exert a negative influence on the size of the public sector, although the impact is statistically not significant. The insignificance of the impact of fiscal decentralisation on the size of the public sector is explained in terms of the fact that there has, in fact, been very little decentralisation in South Africa. The size of the provincial and local government own source revenue relative to the consolidated general government expenditure is very little, pointing to the serious lack of revenue raising powers by the sub-national governments and thus the absence of any meaningful extent of decentralisation. Third fiscal-collusion exerts a significant negative influence on the size of the public sector. That is, the size of the public sector will reduce if provinces and local authorities are granted enough power to raise their own revenues. This result indicates that the massive transfers of revenue from the national government to the provinces and local authorities (revenue sharing) significantly reinforces the expanding influence of the decentralised expenditures financed through revenue transfers. Fourth, the overall size of the country's population is found to be inversely related to the size of the public sector supporting the argument that as population increases, economies in providing services are reaped. / Thesis (M.Com.)-University of Natal, Pietermaritzburg, 1999.

This study examined whether South African government reacted to its debt positions in a sustainable manner during the period 1999 quarter 1 to 2016 quarter 2. Estimation of the fiscal reaction function was conducted by integrating the exogenous short-run impact of monetary policy stance on both primary balance and public debt positions. The VEC model approach was applied to estimate the fiscal reaction function. Results indicate that fiscal policy in South Africa was sustainable during the respective sample period while monetary policy stance had statistically significant impacts on both primary balance and public debt positions. The significant impacts of monetary policy stance on primary balance and public debt show that monetary policy contributes to ensuring fiscal sustainability in South Africa, hence government needs to harmonize monetary efforts in managing public debt. The estimated impact of the business cycle on primary balance positions indicate that fiscal policy was countercyclical in nature. / Economics / M. Com. (Economics)

In a world of economic uncertainty and manifold social problems, South Africa has its own unique challenges of low economic growth, persistent budget deficits that produce increasing government debt and the highest level of economic inequality in the world. The history of injustice and economic marginalisation and the failure of the economy to provide inclusive growth drives an urgent need to address economic inequality through tax policy, placing ever more focus on wealth taxes as a possible solution. There is a hope is that taxing the wealthy may provide the opportunity to redistribute desperately-needed resources to those denied the opportunity to build wealth and who are trapped in the cycle of poverty. Yet, as appealing as a new wealth tax may seem, the introduction of such a tax carries with it a range of risks, not all of which are known. Of great concern is the possible effect on the economy, which, in its vulnerable state, cannot afford any loss of capital and investment. Very little research has been done on wealth tax in the South African context and there is a dearth of literature focusing on the views and perceptions of the wealthy individuals themselves. This qualitative study investigates the merits and disadvantages of a new wealth tax and seeks to identify any unintended consequences that could result from the implementation of a new wealth tax in South Africa, drawing from historical and international experience and primary data obtained from interviews with individuals likely to be affected by such a tax. Having explored the literature and international experiences with wealth tax and having probed the thinking of wealthy individuals who would be the payers of a wealth tax, the study finds that a new wealth tax may contribute towards the progressivity of the tax system, but it is doubtful whether such a tax would provide a sustainable revenue stream that would be sufficient to address economic inequality and there is a risk of causing harm to the economy. Recognising that the motivation for wealth taxes is often driven more by political argument and public perception than by rational quantitative analysis, the study also anticipates the introduction of a new wealth tax and suggests guidelines for the design of such a tax within the framework for evaluating a good tax system. This study informs the debate on wealth taxes in South Africa and contributes to the design of such a tax, should it be implemented.

Even though major advances in economic theory and modelling have in some cases furthered our understanding of how the economy works, the system as a whole has become more complex. If policymakers had perfect knowledge about the actual state of the economy, the various transmission mechanisms as well as the true underlying model, monetary intervention would be greatly simplified. In reality, however, the monetary authorities have to contend with considerable uncertainty in relation to the above-mentioned factors. This said, uncertainty has mostly been neglected in both the theoretical and empirical literature focusing on monetary policy analysis. Nonetheless, findings from a review of theoretical literature that does exist on this topic suggest that optimal central banks act more conservatively when faced with uncertainty. Similarly, empirical findings from the literature also favour conservatism. However, there is some evidence to suggest that this is not always the case. These results suggest that central banks do not always act optimally when faced with uncertainty. The limited number of industrial country cases examined prevents any generalised view from emerging. If anything, the literature findings suggest that central bank behaviour differs across countries. This thesis aims to contribute to the empirical literature by studying the effects of uncertainty on monetary policy in the developing country case of South Africa. In simplest terms, the thesis seeks to establish whether or not the South African Reserve Bank (SARB) responded optimally to uncertainty as suggested by theoretical models thereof. To this end, the thesis employs a theoretical model which resembles a structural rule-based approach. The optimal interest rate rule was derived given a set of structural equations relating to demand, the Phillips curve and the real exchange rate. To incorporate uncertainty, it is assumed that the coefficients are dependent on the variances of the exogenous variables, namely inflation, the output gap and the exchange rate. The uncertainty adjusted model allows us to investigate whether monetary policy is more aggressive or passive when uncertainty about the relevant exogenous variable increases. Inflation, output gap and exchange rate uncertainty estimates were derived through GARCH-model specifications related to the structural equations as defined in the theoretical model. The investigation considered both indirect and direct uncertainty effects with a sample period stretching from 1990 to 2011. The findings reported in this thesis provide strong evidence in support of the notion that uncertainty plays a significant role within the South African monetary policy landscape and contributes towards explaining the SARB’s actions. Furthermore, the results suggest that the SARB did in fact act optimally in responding more conservatively to target variable fluctuations on average. Also, the findings could potentially strengthen the case for inflation targeting as a monetary policy regime, as the results indicate a marked decline in the effects of uncertainty under inflation targeting than before. / Economics / D. Com. (Economics)