Role of Fiscal Policy in Tackling the HIV/AIDS Epidemic in Southern Africa

Abstract

Three countries in southern Africa have the highest adult HIV prevalence in the world: Swaziland (25.9 per cent), Botswana (24.8 per cent), and Lesotho (23.6 per cent). Fiscal policy is crucial for addressing this HIV/AIDS crisis. Utilizing a calibrated model, this paper investigates the impact of fiscal policy on reducing the HIV/AIDS incidence rates in these countries. In particular, we studied the welfare impact of different taxation and debt paths in these countries in reducing the HIV/AIDS prevalence rates. This is particularly important given the current concerns about dwindling foreign aid (especially the global AIDS fund), and the fiscal deterioration and sustainability in these countries. Our results show that, acting optimally has not only a positive societal welfare effect but also positive fiscal effects. For example, it will alleviate the debt burden by 5 per cent, 1 per cent and 13 per cent of the GDP, respectively for Botswana, Lesotho and Swaziland by the year 2020. Thus, at a time of fiscal crisis in developed countries and dwindling international HIV/AIDS resources, the future of effective and efficient HIV/AIDS intervention in Africa is clearly domestic.