Government expenditure growth in South Africa, 1960-1993.

Abstract

This study is about government expenditure in South Africa for the 1960 - 1993 period. It seeks to investigate (i) the sources of growth of government expenditure, (ii) the relative contribution of the major functional categories (i.e. general administration, economic services, social services, and defence expenditure) to the aggregate government expenditure, and (iii) to estimate the future growth in government expenditure given the rate of growth of the economy. The analytical approach adopted in the study is based on the framework developed by Abedian and Standish (1984). In this framework, the contribution of each expenditure category to total expenditure is obtained as the ratio of the product of the percentage change in an expenditure category and the share of that expenditure category in the total to the percentage change in total expenditure. To investigate the sources of the expenditure growth, a model relating expenditure to its determinants is specified and estimated to obtain the expenditure elasticities, which are then used to determine the impact of the changes in each determinant on the expenditure in question. Finally, using the rate of growth of domestic income (GDP), and the long-run income elasticity of demand for government services, the maximum permissible growth of expenditure is determined. With these estimates, the expected shortfall between the desired and actual expenditure is then determined. Our results show that the income elasticities of all the functional expenditures and the total non-defence expenditure were found to be greater than unity, suggesting the presence of the Wagner's law in South Africa during the 1960 - 1993 period. This implies that government expenditure increased more than the proportionate increase in income. Expenditure on administration was the largest contributor to the level of government spending. However, in 1990, social services became the largest contributor and remained at that high level until 1993. The higher the growth in the economy, the larger will be growth in government expenditure. A significantly high growth in the economy was accompanied by a significantly high growth in government expenditure. When the growth in the economy turned to negative, the growth in government expenditure also became negative.