Computable general equilibrium modelling (CGE)‎ a real model of a small open economy with government : a case of scaling up government expenditure (South Africa)‎

Abstract EN

This paper highlights some of the key policy issues that can be modeled by using the Computable General Equilibrium (CGE) model.

The paper tries to present the results on the impacts of scaling up public expenditure on the performance of the economy.

Scaling up of public expenditure means increasing money in the circular flow of income which in return increases the size of economic activity.

However, the impact depends on the direction of the expenditure.

In this case the government expenditure, public goods and services were increases by 10 %.

The immediate impact is the decrease in government saving by 57.8 %, followed by 5.72 % decrease in total investment.

The decrease in investment led to decrease in production and hence in export.

The results also revealed dramatic drop in income received by government and firms by 1.1 % and 0.9 % per cent respectively.

On the other hand labor endowed households’ income has increased by 2.2 %.These results explain that observed trend in service sector where savings levels by capitalists and firms has decreased by 0.8 % and 1.6 % respectively.

Also the decrease income in has led to a decrease in consumption by capitalists.