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Can Redistribution Keep Up with Inequality? Evidence from South Africa, 1993-2019

Author

Listed:
  • Aroop Chatterjee

    (WITS - University of the Witwatersrand [Johannesburg])

  • Léo Czajka

    (UCL - Université Catholique de Louvain = Catholic University of Louvain)

  • Amory Gethin

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, WIL - World Inequality Lab)

Abstract

Can government redistributive policies successfully curb rising inequality and foster inclusive growth in emerging economies? This paper sheds new light on this question by combining survey, tax, and historical administrative data to measure the incidence of taxes and transfers on the distribution of growth in South Africa since the end of the apartheid regime. Our new database is fully consistent with macroeconomic totals reported in the national accounts and allocates the entirety of government revenue and expenditure to individuals, including indirect taxes and inkind transfers, with unprecedented level of detail. We document a dramatic divergence in the growth of top and bottom income groups: between 1993 and 2019, the pretax income of the top 1% rose by 50%, while that of the poorest 50% fell by a third. However, the widening of pretax income gaps has been almost fully compensated by the growing size and progressivity of the taxand-transfer system, effectively mirroring a "chase between rising inequality and enhanced redistribution". The decline of racial inequalities since the end of apartheid has been entirely driven by the boom of top Black income groups, which is only marginally reduced by taxes and transfers. Our results have important implications for fiscal policy, the measurement of poverty, and the analysis of the link between inequality and growth.

Suggested Citation

  • Aroop Chatterjee & Léo Czajka & Amory Gethin, 2021. "Can Redistribution Keep Up with Inequality? Evidence from South Africa, 1993-2019," World Inequality Lab Working Papers halshs-03364039, HAL.
  • Handle: RePEc:hal:wilwps:halshs-03364039
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03364039
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    1. Marlin Jason Fortuin & Gerhard Philip Maree Grebe & Patricia Lindelwa Makoni, 2022. "Wealth Inequality in South Africa—The Role of Government Policy," JRFM, MDPI, vol. 15(6), pages 1-11, May.
    2. Muna Shifa & Rejoice Mabhena & Vimal Ranchhod & Murray Leibbrandt, 2023. "An assessment of inequality estimates for the case of South Africa," WIDER Working Paper Series wp-2023-90, World Institute for Development Economic Research (UNU-WIDER).

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