Towards an effective fiscal stimulus: Evidence from Botswana

Figures & data

Figure 1. Evolution of sources of revenue, 1973–2016.

Source: Ministry of Finance and Economic Development—Financial Statement of the Consolidated Fund, 2017.

Figure 2. Real GDP Growth (%), 1995–2017.

Source: Statistics Botswana—Gross Domestic Product Quarter 3, 2018.

Table 1. Steady state values

Parameter description	Parameter	Parameter values
Fraction of savers	f	0.35
Production distortion	ι	0.49
Capital mobility	v	500
Efficiency of government investment	e	0.4
Mining GDP to GDP share		0.158
Steady state effective labour tax rate	τ ^l	0.1
Steady state effective consumption tax rate	τ ^c	0.12
Steady state effective corporate tax rate	τ ^k	0.15
Mining royalty rate on mineral output	τ ^o	0.001
Private consumption to GDP share		0.7
Private investment to GDP share		0.12
Mining value added to GDP share		0.15
Government spending to GDP share		0.35
Government consumption to GDP share		0.2
Government investment to GDP share		0.15
Traded government spending to GDP share		0.105
Non-traded government to GDP share		0.245
Trade balance to GDP share		−0.17
Non-traded balance to GDP share		0.646
Traded value added to GDP share		0.204
International reserves held by the central Bank to GDP share		0.162
	${\delta }^{gov}$	0.9
Exchange rate regime	ω ^S	1,000,000

Source: Basdevant et al. (2011).

Table 2. Baseline calibration

Variable	Value	Description
σ	2	Inverse of intertemporal elasticity of substitution for consumption
γ	2.5	Inverse of Frisch elasticity of labour supply
φ	0.6	Degree of home bias in consumption
χ	1.5	Elasticity of substitution between traded and non-traded
θ	12	Elasticity of substitution between non-traded goods
$K^r$	0.117	Preference weight on leisure for savers
$K^{nr}$	0.287	Preference weight on leisure for the hand-to-mouth
$\varsigma$	0.99	Implying that the interest elasticity of real money demand is 8.5
${ }^{nt}$	0.84	Share of labour supplied to non-traded
δ	1	Elasticity of substitution b/w the two types of labour
β	0.995	The discount factor of savers
${ }^{tr}$, ${ }^{nt}\propto$	0.7	Share of labour income
${ }^o$,	0.8	Mining production coefficient
${ }^{gov}$	0.1	Output elasticity of public capital
d, ρ_zTr	0.1	Learning by doing
$k^{nt}$ $k^{tr}$	25	Investment adjustment cost
${ }^{nt}$, ${ }^{tr}$, ${ }^m$	0.015	Depreciation rate for $K^{nt}$, $K^{tr}$ & $K^m$
${ }^{gov}$,	0.02	Depreciation rate for $K^{gov}$
ς	130	Implying the marginal cost coefficient in the NK Phillips curve is 0.1
$\eta$	0.7	Home bias of government purchases
$\mu K_t^{gov}$	0.5	User fees of public capital

Source: Basdevant et al. (2011)

Figure 3. Impact of consumption tax cut in response to a persistent mining productivity shock.

Source: Author’s computation.

Figure 4. Impact of labour tax cut in response to a persistent mining productivity shock.

Source: Author’s computation.

Figure 5. Impact of an increase in government investment in response to a persistent mining productivity shock.

Source: Author’s computation.

Figure 6. Impact of an increase in government consumption in response to a persistent mining productivity shock.

Source: Author’s computation.

Table 3. Multipliers across different fiscal stimulus instruments

	Short-term (1 year)	Medium-term (3 years)	Long-term (10 years)
Consumption tax	0.15	0.10	0.06
Labour tax	0.42	0.41	0.27
Government investment	0.10	0.11	0.15
Government consumption	0.11	0.08	0.05

Source: Author’s Computation

Basdevant, O., Benicio, D., Mircheva, B., Mongardini, J., Verdier, G., Yang, S., & Zanna, L. F. (2011). The design of fiscal adjustment strategies in Botswana, Lesotho, Namibia, and Swaziland. IMF Working Papers 11/266, 1–38.

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