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 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
12:00-13:00
Prof Derek Yu: University Of The Western Cape
Topic: "Examining the teaching, assessment and research activities of the South African Economics Departments"
BER Weekly
13 Jun 2025 Another global flashpoint ignites as Israel attacks Iran’s nuclear facilitiesThe story for the week was initially relatively positive, with the overarching narrative being that the US and China agreed on a trade truce. However, overnight, Israel struck Iran’s nuclear facilities, military sites and killed senior commanders in dozens of strikes. While Israel has attacked Iran before, this is the first time nuclear facilities were...
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