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Distributional Impact of Fiscal Policy in South Africa

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Listed:
  • Gabriela Inchauste
  • Nora Lustig
  • Mashekwa Maboshe
  • Catriona Purfield
  • Ingrid Woolard

Abstract

This paper estimated the distributional impact of the main elements of general government taxation and spending in South Africa, applying fiscal incidence analysis to the 2010/11 IES (Stats SA 2012b). On the tax side, it analyzed the incidence of 64.5 percent of total tax revenue, including PIT, VAT, excise taxes on alcohol and tobacco, and the general fuel levy. On the expenditure side, it analyzed the incidence of 43 percent of general government expenditures, focused on social spending including direct cash transfers, free basic services, and health and education spending.The results show that South Africa uses its fiscal instruments to significantly reduce market income inequality and poverty through a progressive tax system and highly progressive social spending. The rich in South Africa bear the brunt of taxes that we examined, and the government redirects these resources to the poorest in society to raise their incomes. Only the top three deciles of the income distribution pay more in taxes than they receive in transfers. As a result, the fiscal system lifts some 3.6 million individuals out of poverty. Despite the large fiscal redistribution, however, South Africa remains one of the most unequal countries in the world. More can and should be done to improve the quality of education and health service delivery.

Suggested Citation

  • Gabriela Inchauste & Nora Lustig & Mashekwa Maboshe & Catriona Purfield & Ingrid Woolard, 2015. "Distributional Impact of Fiscal Policy in South Africa," Commitment to Equity (CEQ) Working Paper Series 29, Tulane University, Department of Economics.
  • Handle: RePEc:tul:ceqwps:29
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    File URL: http://repec.tulane.edu/RePEc/ceq/ceq29.pdf
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    References listed on IDEAS

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    1. Marisa Bucheli & Nora Lustig & Máximo Rossi & Florencia Amábile, 2014. "Social Spending, Taxes, and Income Redistribution in Uruguay," Public Finance Review, , vol. 42(3), pages 413-433, May.
    2. Nora Lustig & Carola Pessino, 2014. "Social Spending and Income Redistribution in Argentina during the 2000s: The Increasing Role of Noncontributory Pensions," Public Finance Review, , vol. 42(3), pages 304-325, May.
    3. Nora Lustig, 2016. "Commitment to Equity Handbook. A Guide to Estimating the Impact of Fiscal Policy on Inequality and Poverty," Commitment to Equity (CEQ) Working Paper Series 1301, Tulane University, Department of Economics.
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    7. Nora Lustig & Carola Pessino, 2012. "Social Spending and Income Redistribution in Argentina During the 2000s: the Rising Role of Noncontributory Pensions," Working Papers 1221, Tulane University, Department of Economics.
    8. Cabrera, Maynor & Lustig, Nora & Morán, Hilcías E., 2015. "Fiscal Policy, Inequality, and the Ethnic Divide in Guatemala," World Development, Elsevier, vol. 76(C), pages 263-279.
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    11. Nora Lustig & Sean Higgins, 2012. "Commitment to Equity Assessment (CEQ): Estimating the Incidence of Social Spending, Subsidies and Taxes Handbook," Working Papers 1219, Tulane University, Department of Economics.
    12. Sean Higgins & Claudiney Pereira, 2014. "The Effects of Brazil’s Taxation and Social Spending on the Distribution of Household Income," Public Finance Review, , vol. 42(3), pages 346-367, May.
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    15. John Scott, 2014. "Redistributive Impact and Efficiency of Mexico’s Fiscal System," Public Finance Review, , vol. 42(3), pages 368-390, May.
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