Exploring a negative income tax for South Africa: impacts on income inequality and poverty

Emma Helen Rasmussen
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Emma Helen Rasmussen: Southern Africa Labour and Development Research Unit, School of Economics, University of Cape Town

No 215, SALDRU Working Papers from Southern Africa Labour and Development Research Unit, University of Cape Town

Abstract: This paper explores the potential of a negative income tax to tackle South Africa's dual challenges of poverty and income inequality. Using a static, arithmetic microsimulation model with NIDS Wave 4 as the base dataset, we simulate a negative income tax in which recipients receive an income subsidy proportional to their income if it is below a set amount and a guaranteed subsidy if they have zero income. Two different sizes for the guaranteed subsidy are simulated, both pegged to recent poverty lines. The simulations show that the negative income tax significantly reduces both inequality and poverty levels, but that this necessarily comes at a high cost.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ldr:wpaper:215

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