Research Papers in Economics, Department of Economics, Stockholm University
Fiscal Implications of Aids in South Africa
Abstract: The number of people living with HIV is alarmingly large.
In addition to the incomprehensible human suffering of those directly
affected, AIDS also has large, negative economic effects. In this paper, I
study the fiscal implications of the HIV/AIDS epidemic in South Africa in a
standard neo-classical growth model. I find that an antiretroviral program
is to a large extent self financing. Improvement in dependency ratios and
health care cost savings would pay for Rand 144 billion of a full
epidemiological intervention. The indirect effect through the changing
demographic structure will be more important than the direct health care
cost saving effect. I also explore different taxation policies. The
households would be willing to sacrifice an amount equal to 12% of GDP in
the first period to be subject to an optimal (Ramsey) fiscal policy rather
than an alternative fixed debt to GDP policy. The optimal policy implies an
increase in government debt during the peak of the epidemic.
Keywords: AIDS; Fiscal Impact; Economic Impact; Fiscal Policy; Taxation; (follow links to similar papers)
JEL-Codes: E17; E21; E23; E62; H21; H23; (follow links to similar papers)
46 pages, December 4, 2006
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