Fiscal policy and dimensions of inequality in South Africa: A time-varying coefficient approach
Stellenbosch Working Paper Series No. WP05/2023Publication date: December 2023
Author(s):
[protected email address] (Department of Economics, Stellenbosch University)
[protected email address] (Department of Economics, Stellenbosch University)
South Africa continues to face high inequality levels despite its progressive tax and extensive social protection systems. We compare the dynamic impact of fiscal policy on the distribution of incomes, wages, and wealth in South Africa from 1993 to 2019. For this purpose, we use a time varying parameter vector autoregression to estimate the impact of direct tax revenue and total transfer spending on three distinct inequality datasets. The analysis of various dimensions of inequality is the main contribution of the paper as the literature typically focuses on income inequality. A second contribution lies in the incorporation of time varying effects which enables the analysis of the changing relationship between fiscal policy and inequality. The results suggest that this relationship is indeed time-varying and that the impact of direct taxes and transfers differs markedly across the inequality dimensions, both in terms of magnitude and sign. Overall, we find that both transfers and direct taxes have not significantly reduced income, wage or wealth inequality in South Africa.
JEL Classification:C32, D31, E62
Keywords:income inequality, wage inequality, wealth inequality, fiscal policy, TVP-VAR
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Upcoming Seminars
Monday 02 June 202512:00-13:00
Dr Dawie van Lill: South African Reserve Bank & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Hylton Hollander: University Of Cape Town
Topic: "TBC"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
BER Weekly
30 May 2025 SARB sees scope to cut the repo rate, while some of Trump’s tariffs are put on holdLocally, the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) decided to cut the repo rate by 25bps to 7.25% (prime to 10.75%). The dovish tilt with all six members voting for a cut (and one even preferring a 50bps cut) was surprising – but welcome. Furthermore, the clear signalling around moving to a 3% inflation target is positive and...
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