Original Research

Do fiscal deficits influence private savings in South Africa? An empirical note

Juniours Marire
Journal of Economic and Financial Sciences | Vol 16, No 1 | a809 | DOI: https://doi.org/10.4102/jef.v16i1.809 | © 2023 Juniours Marire | This work is licensed under CC Attribution 4.0
Submitted: 25 July 2022 | Published: 28 April 2023

About the author(s)

Juniours Marire, Department of Economics and Economic History, Faculty of Commerce, Rhodes University, Grahamstown, South Africa


Orientation: The neoclassical loanable funds theory predicts that fiscal deficits reduce the pool of available savings in the economy, but heterodox scholarship disputes the claim.

Research purpose: The paper sets out to test the relationship between fiscal deficits and private savings.

Motivation for the study: Scholars are divided on whether corporate South Africa is building up excess savings, with some arguing that it is not and others arguing that it is because of mistrust of government and uncertainty largely. The trends of net private savings and fiscal deficits suggest that something contrary to the postulation of the neoclassical loanable funds theory could be happening in the South African context.

Research approach/design and method: The paper used data for the period 1960–2021 within the Toda-Yamamoto vector autoregressive modelling framework.

Main findings: The results show that fiscal deficits increase savings but reduce interest rates in line with the heterodox view that the financial asset creation effect of debt-financed deficits improves savings and reduces interests through the liquidity channel.

Managerial/practical implications: The lesson for policy is that fiscal deficits are healthy for the economy. However, the government must manage them at some reasonable level to maintain a constant flow of net financial assets to the private sector, thus bolstering savings. An unhealthy pursuit of fiscal surpluses can shift deficits to households and firms, and breed systemic financial instability.

Contribution/value-added: The paper contributed to a nuanced understanding of the role of fiscal deficits in expanding savings, which runs counter to the theoretical underpinnings of fiscal conduct that pursues budget surpluses.


fiscal deficit; corporate savings; household savings; modern monetary theory; loanable funds theory

JEL Codes

H31: Household; H32: Firm; H62: Deficit • Surplus

Sustainable Development Goal

Goal 8: Decent work and economic growth


Total abstract views: 1162
Total article views: 1305


Crossref Citations

1. Interactive influence of house prices and the repo rate on household debt in South Africa
Juniours Marire
Journal of Economic Analysis  vol: 3  issue: 1  year: 2024  
doi: 10.58567/jea03010003