Government transfers, income inequality and poverty in South Africa

Charity Gomo

International Journal of Social Economics, 2019, vol. 46, issue 12, 1349-1368

Abstract: Purpose - The purpose of this paper is to quantify the impact of social or government transfers on income inequality and poverty in South Africa. Design/methodology/approach - A top-down, bottom-up (TD-BU) model which combines an econometrically estimated labor supply model, a detailed tax-benefit module and a computable general equilibrium model is used in order to analyze the impact of government transfers on income inequality and poverty in South Africa. The paper uses a merged South African income and expenditure household survey and labor force survey for the year 2000, and a South African social accounting matrix as the main data sets. Findings - Simulation results suggest that doubling of government transfers lead to a 5.5 percent reduction in poverty if a relative poverty measure is used and a 7 percent reduction if an absolute poverty line is used. In addition, simulation results show differences in poverty and inequality measures between the MS-only model and the linked TD-BU model confirming the importance of linking the two models. Originality/value - The TD-BU approach is important since it explicitly accounts for the following aspects: that labor supply should adjust to changes in the tax-benefit model, general equilibrium effects and the heterogeneity of economic agents. This allows for a richer micro-household modeling.

Keywords: Poverty; Inequality; Government social transfers (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijsepp:ijse-09-2018-0458

DOI: 10.1108/IJSE-09-2018-0458

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