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An Analysis of South Africa's Value Added Tax

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  • Go, Delfin S.
  • Kearney, Marna
  • Robinson, Sherman
  • Thierfelder, Karen

Abstract

In this paper, the authors describe South Africa's value added tax (VAT), showing that (1) the VAT is mildly regressive, and (2) it is an effective source of government revenue, compared with other tax instruments in South Africa. They evaluate the VAT in the context of other distortions in the economy by computing the marginal cost of funds-the effect of raising government revenue by increasing the VAT rates on household welfare. Then they evaluate alternative, revenue-neutral tax systems in which they reduce the VAT and raise income taxes. For the analysis, the authors use a computable general equilibrium (CGE) model with detailed specification of South Africa's tax system. Households are disaggregated into income deciles. They demonstrate that alternative tax structures can benefit low-income households without placing excess burdens on high-income households.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3671.

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Date of creation: 01 Aug 2005
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Handle: RePEc:wbk:wbrwps:3671

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  1. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
  2. F.C.v.N. FOURIE & A. OWEN, 1993. "Value-Added Tax and Regressivity in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 61(4), pages 308-319, December.
  3. Evan Davis & John Kay, 1985. "Extending the VAT base: problems and possibilities," Fiscal Studies, Institute for Fiscal Studies, vol. 6(1), pages 1-16, February.
  4. Löfgren, Hans & Harris, Rebecca Lee & Robinson, Sherman, 2001. "A standard computable general equilibrium (CGE) model in GAMS," TMD discussion papers 75, International Food Policy Research Institute (IFPRI).
  5. Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
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Cited by:
  1. Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2009. "Wage subsidy and labor market flexibility in south Africa," Policy Research Working Paper Series 4871, The World Bank.
  2. McDonald, Scott & Punt, Cecilia, 2005. "General equilibrium modelling in South Africa: What the future holds," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 44(1), March.
  3. Sara Wong & Ricardo Arguello & Ketty Rivera, 2007. "Poverty impacts of increased openness and fiscal policies in a dollarized economy: a CGE-micro approach for Ecuador," DOCUMENTOS DE TRABAJO 004367, UNIVERSIDAD DEL ROSARIO.
  4. Devarajan, Shantayanan & Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen, 2009. "Tax policy to reduce carbon emissions in south Africa," Policy Research Working Paper Series 4933, The World Bank.
  5. Delfin S. Go & John Page, 2008. "Africa at a Turning Point? : Growth, Aid, and External Shocks," World Bank Publications, The World Bank, number 6421, October.

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