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 21 July 202512:00-13:00
Izak Odendaal: Old Mutual Wealth Chief Investment Strategist
Topic: "Diverging fiscal policies and what it means for markets"
12:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
BER Weekly
27 Jun 2025 Another setback for the GNU, but oil markets breathe a little easierThis week was marked by heightened tensions both domestically and internationally. At home, friction intensified between the two largest parties in the Government of National Unity (GNU), the ANC and the DA, following the firing of one of the DA's deputy ministers. Internationally, the US conducted airstrikes on three Iranian nuclear facilities using...
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