scholarly journals Modelling Real Private Consumption Expenditure in South Africa to Test the Absolute Income Hypothesis

2018 ◽  
Vol 10 (5(J)) ◽  
pp. 138-155
Author(s):  
Bokana K.G. ◽  
Kabongo W.N.S.
Keyword(s):  
South Africa ◽  
Economic Activity ◽  
Private Consumption ◽  
Disposable Income ◽  
Consumption Expenditure ◽  
Permanent Income Hypothesis ◽  
Fiscal Stimulus ◽  
Absolute Income ◽  
Household Disposable Income ◽  
The Absolute

This paper explores, the hotly debated topic among economists and policymakers, whether fiscal and monetary policies impact on households by examining the relevance of the absolute income hypothesis in explaining private consumption expenditure and its relationship with household disposable income in South Africa. Worldwide, private consumption expenditure remains a big puzzle for leading consumption function theories. Friedman’s permanent income hypothesis posits that private consumption expenditure is not affected by how much consumers earn on a daily basis, but by what they expect to earn during their lifetime. Friedman’s permanent income hypothesis is at odds with Keynes’s absolute income hypothesis, that private consumption expenditure is affected by fiscal stimulus policies, which are effective for increasing economic activity and employment. Subscribing to the former underrates the potential power of fiscal stimulus policies and other monetary or trade policies that boost short-term income. The overarching objective of this paper is to ascertain whether patterns of private consumption expenditure in South Africa are determined by Friedman or Keynes’s theory. The paper specified econometric equations with quarterly seasonally adjusted data from the South African Reserve Bank for the sample period 1984 to 2015 and estimated them with cointegration techniques consisting of the Engle-Granger two-step approach. The importance of the paper and its scientific novelty are that it is more realistic since it specified models that take into account the reaction time of the dependent variable when the independent variable changes by imposing lags on the variables. The empirical results indicate that in South Africa, when household disposable income changes over time, private consumption expenditure depends more on a household’s previous disposable income than its current disposable income. The main empirical finding is that the absolute income hypothesis is not appropriate in explaining private consumption expenditure in this country. Even when the interest rate was included in a modified absolute income hypothesis, the overall estimates were not robust. Hence, estimates of the short- and long-run regression models were not consistent with the absolute income hypothesis. This is in line with arguments put forward in some extant studies using this model, that the fiscal stimulus policies might not generate the desired increased economic activity and employment. If households use money from the fiscal stimulus policies to bail themselves out of existing debts rather than consume additional goods and services which, would be the catalyzer to increase Gross Domestic Product (GDP). 

scholarly journals Risk, opportunities and reasons of the household debt changes: The case of an emerging economy

2016 ◽  
Vol 14 (1) ◽  
pp. 476-484
Author(s):  
Sisimogang Tracy Seane ◽  
Gisele Mah ◽  
Paul Saah
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Price Index ◽  
Consumer Price Index ◽  
Debt Service ◽  
Disposable Income ◽  
Household Debt ◽  
Household Savings ◽  
Income Household ◽  
Household Disposable Income

In the past decades, household debt in both developed and developing countries have been increasing. With an increase in the standard of living, household debt is also bound to increase. This paper examines the cointegration and causal link among household disposable income, household savings, and debt service ratio, lending interest rate, consumer price index and household debt in South Africa. An Autoregressive Distributed Lag and Granger causality techniques was used to analyse data collected from the South African Reserve Bank and Quantec from 1984 to 2014. The results of Autoregressive Distributed Lag test revealed cointegrating relationships between household debt and debt service ratio as well as household debt and lending interest rate. However, there is no long run cointegrating relationship between household disposable income, household savings and consumer price index with household debt. The Granger causality results revealed that household disposable income, household savings, debt service ratio, lending interest rate, consumer price index do Granger cause household debt in South Africa. Policy makers should thus target these variables in order to reduce household debt in South Africa.

scholarly journals Measuring the effect of the national credit act on indebtedness in South Africa

2015 ◽  
Vol 8 (1) ◽  
pp. 83-104
Author(s):  
Shaun De Wet ◽  
Ilse Botha ◽  
Marno Booyens
Keyword(s):  
South Africa ◽  
Stress Testing ◽  
Disposable Income ◽  
Consumption Expenditure ◽  
Quarterly Data ◽  
Property Prices ◽  
Prime Rate ◽  
The Impact ◽  
National Credit Act ◽  
Rate Property

South Africa continues to exhibit high levels of debt-to-disposable income along with a high number of impaired credit records. The National Credit Act No. 34 of 2005 (NCA) was established in order to address these high levels. This study expands the limited research by investigating the NCA’s ability to reduce levels of over-indebtedness. The study employed quarterly data (2001-2013) in an OLS regression model in order to establish the determinants of over-indebtedness and assess the impact of the NCA. It was found that the macro-economic variables GDP, prime rate, property prices, consumer consumption expenditure, debt-to-disposable income and the level of unemployment were major contributors to the level of over-indebtedness. The NCA proved to have a positive significant effect on the levels of over-indebtedness, indicating that the NCA had not succeeded in its purpose of reducing the vulnerability of consumers to becoming over-indebted. The results suggest that the affordability assessment of the NCA must be improved in order to conduct a form of credit stress testing on consumers during their application for credit.

scholarly journals Risk, opportunities and reasons of the household debt changes: The case of an emerging economy

2016 ◽  
Vol 6 (4) ◽  
pp. 207-215
Author(s):  
Sisimogang Tracy Seane ◽  
Gisele Mah ◽  
Paul Saah
Keyword(s):  
South Africa ◽  
Interest Rate ◽  
Price Index ◽  
Consumer Price Index ◽  
Debt Service ◽  
Disposable Income ◽  
Household Debt ◽  
Household Savings ◽  
Income Household ◽  
Household Disposable Income

In the past decades, household debt in both developed and developing countries have been increasing. With an increase in the standard of living, household debt is also bound to increase. This paper examines the cointergation and causal link among household disposable income, household savings, debt service ratio, lending interest rate, consumer price index and household debt in South Africa. An Autoregressive Distributed Lag and Granger causality techniques was used to analyse data collected from the South African Reserve Bank and Quantec from 1984 to 2014. The results of Autoregressive Distributed Lag test revealed cointegrating relationships between household debt and debt service ratio as well as household debt and lending interest rate. However, there is no long run cointegrating relationship between household disposable income, household savings and consumer price index with household debt. The Granger causality results revealed that household disposable income, household savings, debt service ratio, lending interest rate, consumer price index do Granger cause household debt in South Africa. Policy makers should thus target these variables in order to reduce household debt in South Africa.

scholarly journals Financial Analysis of Major Retail Chains within a Turbulent Economic Environment

2020 ◽  
Vol 15 (3) ◽  
pp. 208-222
Author(s):  
Zisoudis Nikolaos ◽  
Karelakis Christos ◽  
Theodossiou George ◽  
Loizou Efstratios
Keyword(s):  
Economic Crisis ◽  
Economic Activity ◽  
Financial Analysis ◽  
Disposable Income ◽  
National Product ◽  
Financial Indicators ◽  
Financial Situation ◽  
Household Disposable Income ◽  
Greek Economy ◽  
Retail Chains

Abstract The Greek economic activity has been declined dramatically in recent years as many sectors of the economy that cannot cope with the new state brought about by the economic crisis. An economic crisis can be described as the phenomenon when an economy is characterized by a continuous and noticeable decline in its economic activity. As an economic activity, we are referring to all the macroeconomic dimensions of the economy, such as employment, the national product, prices, investments, etc. The downturn in the supermarket sector, which is attributed to the country’s financial situation, has led to a decline in the household disposable income. The present study was carried out at the time of the economic crisis, concerning a productive sector of the Greek economy, where millions of euros are exchanged hands. The objective of the study was to explore the impacts of the economic crisis on the sector by using a series of financial indicators. The results point to significant effects on the efficiency and earnings of the major actors of the sector.

scholarly journals Determinants of household over-indebtedness in South Africa

2021 ◽  
Vol 09 (02) ◽  
Author(s):  
Roseline Tapuwa Karambakuwa ◽  
◽  
Ronney Ncwadi ◽  
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Disposable Income ◽  
Household Debt ◽  
Management Skills ◽  
Finance Management ◽  
Household Disposable Income ◽  
Negative Impacts ◽  
Social Grant ◽  
Female Headed Households

The proportion of household debt to disposable income is high in South Africa, signifying over-indebtedness which reduces the welfare of households. High debt leads to low savings, negatively impacting economic growth. This paper presents the determinants of household debt distress in South Africa and comes up with recommendations on how to manage household debt. The objectives are achieved through systematic literature review. Findings suggest that households are over-indebted because of several reasons. They lack necessary finance management skills and proper protection from predatory practices by lenders. Household indebtedness is also caused by the rising cost of living which leads to low household disposable income and savings, high interest rates, misfortunes and adverse trigger events and income inequalities. Education, age and being a recipient of a social grant all have positive and negative impacts on household indebtedness. Findings also suggest that female-headed households, renting households, large households, urban based households, households with a mortgage and households where the head is not working, is sick or disabled are more likely to be over-indebted. A framework is presented with recommendations on how household debt can be effectively managed in South Africa. Upskilling in finance management can help improve the way households manage their finances. Moneylending institutions should avoid predatory lending and disclose vital information affecting household borrowing decisions. A downward review of interest rates on debt is necessary with a balance between profitability and sustainability of loan repayments. Consumption insurance on loans is recommended to cushion debt distressed households.

scholarly journals Developing a framework for managing household debt The case of South Africa

2021 ◽  
Vol 12 (01) ◽  
Author(s):  
Roseline Tapuwa Karambakuwa ◽  
◽  
Ronney Ncwadi ◽  
Keyword(s):  
South Africa ◽  
Interest Rates ◽  
Urban Areas ◽  
Secondary Data ◽  
Disposable Income ◽  
Household Debt ◽  
Finance Management ◽  
Household Disposable Income ◽  
Social Grant ◽  
Female Headed Households

The proportion of household debt to disposable income is very high in South Africa, signifying over-indebtedness which reduces the welfare of households and ultimately reduces economic growth. This paper presents the determinants of the household debt in South Africa and comes up with a framework of recommendations on how to manage household debt. The objectives are achieved through systematic literature review, document analysis and secondary data analysis. Our findings suggest that households are over-indebted because they lack the necessary finance management skills, lack proper protection from the predatory practices by lenders and fail to obtain disclosure of vital information pertaining credit which affects their decision to borrow. Household indebtedness is also caused by the rising cost of living and low household disposable income, low household savings, high interest rates, misfortunes or adverse trigger events and living in urban areas. Education, age and being a recipient of a social grant all have positive and negative impacts on household indebtedness. Findings also suggest that female-headed households, renting households, large households, households with a mortgage and households where head is not working, is sick or disabled are more likely to be over-indebted. We develop a framework with recommendations for managing household debt in South Africa. We recommend upskilling to help households to effectively manage their finances and take responsibility. Moneylending institutions are encouraged to disclose vital information pertaining credit which affects decision to borrow by households and to avoid predatory lending. We also recommend a review of interest rates on debt and availability of consumption insurance on all loans to cover for cases when the household faces unforeseen circumstances affecting repayment.

scholarly journals Hubungan antara pendapatan disposebel dan pengeluaran konsumsi terhadap tabungan di Desa Sumokembangsri RW 01, Kecamatan Balongbendo Kabupaten Sidoarjo

2017 ◽  
Vol 1 (1) ◽  
pp. 73-78
Author(s):  
Mohamad Johan Efendi
Keyword(s):  
Path Analysis ◽  
Random Sampling ◽  
Total Population ◽  
Household Consumption ◽  
Disposable Income ◽  
Consumption Expenditure ◽  
Goods And Services ◽  
Analysis Technique ◽  
The Village ◽  
Practical Implications

This study aims to determine the correlation between income variable disposebel and consumption expenditure on savings variables in the village of sumokembangsri subdistrict balongbendo, district sidoarjo. Disposebel income is income for household consumption financing. Saving is one means of saving, whereas consume is the activity of purchasing goods and services that are based on the needs and desires with a predetermined exchange. total population of 504 heads of sample households with random sampling or random use of 20% of the population. with a sample of 101 family heads. Answering the problem of research and testing of research hypothesis used path analysis technique, with tool of application of SPSS version 16.0 The result of this research shows regression value that disposebel income have significant effect to consumption expenditure with value 0, 478, disposebel income have significant effect to saving with value 0, 401, consumption expenditure has significant effect on saving with value 0, 425. Practical implications The results of the study found that disposable income has a positive and significant effect on consumption and savings expenditure. This result indicates that the more disposebel income the consumption expenditure will increase as well as the household's inclination to save also increases.

scholarly journals Poverty in the Russian Federation: possibilities and specifics of the use of the AROPE multi-criteria index in the poverty monitoring system of the Russian Federation

2020 ◽  
Vol 4 (1) ◽  
pp. 1-19
Author(s):  
Marina A. Kartseva
Keyword(s):  
Russian Federation ◽  
Negative Impact ◽  
National Level ◽  
Federal District ◽  
Poverty Level ◽  
Absolute Income ◽  
Poverty Status ◽  
Working Age ◽  
The Russian Federation ◽  
The Absolute

The article presents a comparative analysis of the level and structure of poverty of the Russian population using two different concepts of poverty definition — the absolute income criterion currently used by Rosstat, and the AROPE indicator of poverty and social exclusion. The paper also attempts to assess how the change of the methodology for determining poverty can affect the existence of the poverty status of individuals. The study is carried out both at a national level and at a federal district level. The empirical basis of the paper is selective observation of income of the population and participation in social programmes, conducted by Rosstat in 2017. The results show that in transition from the absolute income criterion to the multi-criteria AROPE index, the poverty level of the population of the Russian Federation significantly increases. The highest growth of poverty is among people over working age. The age structure of poverty also changes significantly. With AROPE, the proportion of older persons among the poor increases and the proportion of children decreases. It is also shown in the article that the transition from the current official methodology of poverty definition to the definition in accordance with AROPE’s methodology can lead to loss of the poverty status by part of the population, which, in case of the official transition to using AROPE index as a criterion for receiving social support, can have a negative impact on their socio-economic situation. The obtained results vary significantly by federal districts of the Russian Federation.

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