Intergenerational burden of debt-financed fiscal expansion: an Overlapping Generations model with Markov-switching regimes evidence from South Africa

Abstract This paper examines the intergenerational and distributional effects of debt-financed fiscal policy in South Africa, comparing immediate versus delayed fiscal consolidation. Using an Overlapping Generations (OLG) model with Markov-switching fiscal regimes calibrated to 1960–2020 South African data, we incorporate age-specific productivity, regime-dependent capital shares, and fiscal rules. Delayed fiscal consolidation reduces lifetime consumption for post-2000 cohorts by over 15%, while early cohorts gain modestly. Immediate fiscal consolidation preserves capital and mitigates intergenerational distortions. Fiscal consolidation that are regressive: low-income households face larger losses, and delays raise the Gini coefficient from 0.650 to 0.695. Timing interacts with regime dynamics, revealing nonlinear trade-offs between short-run stimulus and long-run sustainability. This is the first systematic assessment of fiscal policy timing in South Africa with regime uncertainty and intergenerational welfare measures.