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Efficiency of Optimal Taxation in a Dynamic Stochastic Environment: Case of South Africa

Author

Listed:
  • Jacques Kibambe Ngoie

    (Department of Economics, University of Pretoria)

  • Niek Schoeman

    (Department of Economics, University of Pretoria)

Abstract

This study investigates the optimality hypothesis of taxation and the volatility thereof in South Africa when using appropriate tax rates within a dynamic stochastic environment. Using a Marshallian macroeconomic model disaggregated by sectors (MMM-DA) several features of the South African economy are analysed that may contribute to the efficiency of the optimal taxation hypothesis. The results show that within a tax regime where revenue from labour and capital income constitutes the most significant source of government income, both such taxes distort the economy but that the distortion from a tax on capital exceeds that of a tax on income. This study has twofold implications. It highlights the impact of efficient optimal taxation on both overall economic growth and fiscal policy in the country.

Suggested Citation

  • Jacques Kibambe Ngoie & Niek Schoeman, 2012. "Efficiency of Optimal Taxation in a Dynamic Stochastic Environment: Case of South Africa," Working Papers 201218, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201218
    as

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    References listed on IDEAS

    as
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    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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