Abstract

This study examines the nature and stability of the relationship between government spending and gross national income in South Africa, with a focus on whether fiscal dynamics are consistent with Wagner’s Law. Using annual data from 1990 to 2024, the study employs nonlinear autoregressive distributed lag (NARDL) and time-varying parameter (TVP) models to capture both asymmetric and changing fiscal dynamics. The findings show that positive income shocks have a modest, marginally significant effect on government spending, while negative shocks have no significant impact. This asymmetry suggests spending rigidity rather than a structured Wagnerian relationship. The bounds test fails to establish cointegration, and short-run Granger causality tests reveal no predictive influence in either direction. Multiple structural breaks (concentrated around 1994, 2008, 2009, 2017, and 2018) show that South Africa’s fiscal behaviour evolves through distinct regimes rather than following a consistent path. These findings imply that the income–spending relationship is unstable and regime-dependent, with limited and conditional evidence consistent with Wagner’s Law and no evidence of a systematic or stable Wagnerian relationship. The study concludes that South Africa’s fiscal planning should use medium-term frameworks that account for regime-dependent behaviour and structural instability rather than relying on stable long-run fiscal multipliers.

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