Efficiency of Optimal Taxation in a Dynamic Stochastic Environment: Case of South Africa

Jacques Ngoie (jacques.kibambe@up.ac.za) and Nicolaas Schoeman
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Jacques Ngoie: Department of Economics, University of Pretoria

No 201218, Working Papers from University of Pretoria, Department of Economics

Abstract: This study investigates the optimality hypothesis of taxation and the volatility thereof in South Africa when using appropriate tax rates within a dynamic stochastic environment. Using a Marshallian macroeconomic model disaggregated by sectors (MMM-DA) several features of the South African economy are analysed that may contribute to the efficiency of the optimal taxation hypothesis. The results show that within a tax regime where revenue from labour and capital income constitutes the most significant source of government income, both such taxes distort the economy but that the distortion from a tax on capital exceeds that of a tax on income. This study has twofold implications. It highlights the impact of efficient optimal taxation on both overall economic growth and fiscal policy in the country.

Keywords: Optimality hypothesis; Dynamic stochastic environment; Marshallian macroeconomic model (search for similar items in EconPapers)
JEL-codes: D78 K21 L40 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2012-05
New Economics Papers: this item is included in nep-afr and nep-pbe
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