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How Buoyant Is the South African Tax System? An ARDL Approach

Author

Listed:
  • Baneng Naape

    (University of the Witwatersrand)

  • Nyasha Mahonye

    (University of the Witwatersrand)

Abstract

This study aims to scrutinize the responsiveness of the South African tax system to changes in economic performance. The study made use of annual time series data spanning from 1995 — 2017. The tax system was found to be fairly buoyant, albeit there is still room for improvement. The ARDL bounds test results indicate that VAT revenue and custom duties grow at a faster pace than the growth in final household consumption and import value, respectively. VAT revenue has a long run buoyancy coefficient of 1.35 while custom duties have a long run buoyancy coefficient of 1.42. This implies that VAT revenue and custom duties are perfectly elastic to variations in their respective bases, at least in the long run. The estimated buoyancy coefficient for total tax revenue growth is 0.82, implying that the growth in total tax revenue did not match the growth of the economy during the estimation period. The government can improve the efficiency and responsiveness of the tax system through good governance and strong political leadership. Furthermore, structural economic reforms are necessary to boost growth and tax revenue mobilisation.

Suggested Citation

  • Baneng Naape & Nyasha Mahonye, 2020. "How Buoyant Is the South African Tax System? An ARDL Approach," ERSA Working Paper Series 94, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:94
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    File URL: https://ersawps.org/index.php/working-paper-series/article/view/94/69
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    JEL classification:

    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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