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
Download: PDF (1.1 MB)Login
(for staff & registered students)
BER Weekly
7 Feb 2025 A sensible SONA as Trump tangoes with tariffs and targets SAIt was a week filled with geopolitical upheavals. The fallout from President Ramaphosa’s signing of the Expropriation Bill continued to unfold. Just as tensions between the ANC and DA within the GNU appeared to be shifting toward constructive dialogue, US President Donald Trump chimed in on Sunday on social media. Meanwhile, SA President Cyril Ramaphosa...
Read the full issue
BER Weekly
7 Feb 2025 A sensible SONA as Trump tangoes with tariffs and targets SAIt was a week filled with geopolitical upheavals. The fallout from President Ramaphosa’s signing of the Expropriation Bill continued to unfold. Just as tensions between the ANC and DA within the GNU appeared to be shifting toward constructive dialogue, US President Donald Trump chimed in on Sunday on social media. Meanwhile, SA President Cyril Ramaphosa...
Read the full issue