Ebrahim, A & Pirttilä, J (2019) Can a wage subsidy system help reduce 50 per cent youth unemployment? Evidence from South Africa. WIDER Working Paper 2019/28. Helsinki: UNU-WIDER.
The paper examines the incidence and employment impacts of the Employment Tax Incentive, a South African wage subsidy system that is targeted at the employers of low-wage youth.
The paper uses a triple differences strategy and survey and administrative data, covering the universe of South African workers. The results reveal that the system has not had a positive influence on the employment rate of eligible workers.
The number of jobs in the region where the subsidy is the greatest has increased, but the increase is not statistically significant, perhaps due to a low take-up rate. Earnings seem to have increased for part of the eligible group, suggesting that the incidence is partly on workers.
Ebrahim, A & Axelson, C (2019) The creation of an individual panel using administrative tax microdata in South Africa. WIDER Working Paper 2019/27. Helsinki: UNU-WIDER.
The availability of anonymized individual tax return data can contribute to a deeper understanding of the drivers behind the high levels of inequality and unemployment in South Africa. In the recent past, researchers have examined either payroll or personal income tax data.
This paper explains the methodology behind the creation of an anonymized individual panel combining these data to produce a more complete overview of formal employment in South Africa. This paper provides a descriptive overview of the characteristics of the panel, notes some of the pitfalls in the data, and offers some ideas for research to highlight some of the potential.
Kampamba, R et al. (2019) Financing the Zambia social cash transfer scale-up: A tax benefit microsimulation analysis based on MicroZAMOD. WIDER Working Paper 2019/19. Helsinki: UNU-WIDER.
This paper assesses the effects on poverty and inequality of the alternative targeting approaches that Zambia’s Social Cash Transfer programme could take as its expansion continues during the period of the country’s Seventh National Development Plan (2017–21). It further assesses the domestic financing needs associated with alternative approaches.
The Zambian government introduced support based on giving actual cash through social cash transfers aimed at reducing poverty and vulnerability in a sustainable and cost-effective way. Using data from the 2015 Living Conditions Monitoring Survey, we simulate static effects of the alternative social cash transfer design options and their total cost using MicroZAMOD. In the absence of social cash transfers, nationwide extreme poverty would be 1.6 percentage points higher than otherwise.
The results show that the combination of alternative options, particularly the inclusion of children and increased transfer financed from increased domestic taxes levels, yields higher impacts on poverty reduction.
Haaparanta, P et al. (2019) Promoting education under distortionary taxation: Equality of opportunity versus welfarism. WIDER Working Paper 2019/18. Helsinki: UNU-WIDER.
How does the public provision of education and the deployment of distortionary tax and subsidy instruments differ when the government’s objective is conventional welfarist compared to when the objective is the non-welfarist one of equality of opportunity?
This paper develops a framework in which the tax and provision rules in the two settings can be easily compared and contrasted. A range of results are derived which help to answer questions such as whether it is the case that progressive taxation is not used at all under opportunities-based objectives. We show that progressive taxation still plays a role in achieving the objective of equal opportunities, and illustrate how its use may differ under the two objectives.
We also show how the provision of public education depends on how private education choices respond, especially the differential responses by higher- and lower-income families. These themes reflect concerns in the policy discourse, and our framework provides an entry point into a systematic exploration of a broad range of issues in comparing the consequences of welfarist and equality of opportunity objectives.
Maskaeva, A et al. (2019) Microsimulation analysis of the impact of indirect tax benefits on income distribution and poverty alleviation in Tanzania: An application of TAZMOD. WIDER Working Paper 2019/16. Helsinki: UNU-WIDER.
This paper analyses the impacts of indirect tax policy reforms on income distribution and poverty in Tanzania by applying a standard static microsimulation model TAZMOD v1.8. The simulations model two indirect tax reforms involving changes to the excise duty and value-added tax rates on alcoholic beverages and tobacco products, and changes to employers’ and employees’ contributions to the National Health Insurance Fund.
The results of the first reform find a positive effect on government tax revenue and a neutral effect on income distribution and poverty. The results of the second reform find a positive effect on household income distribution and consumption. The findings show that, despite increasing unequal income distribution, poverty indicators fell.
H Jara, X & Rodriguez, D (2019) Financial disincentives to formal work: Evidence from Ecuador and Colombia. WIDER Working Paper 2019/14. Helsinki: UNU-WIDER.
The aim of this paper is to quantify the financial cost that informal workers would incur in the event of entering formality, accounting for potential earnings gains upon entry. To do so, we use representative microdata from Ecuador and Colombia, together with detailed tax–benefit models, and simulate transitions to formal employment for all workers observed in informality in the data, with informality defined as non-affiliation to social security.
Our results point to strikingly high formalization costs in the two countries, with on average 52.8 and 78.5 per cent of workers’ additional earnings taxed away due to social security payments in Ecuador and Colombia, respectively. Costs are particularly high for self-employed informal workers at the bottom of the earnings distribution.
The results are mainly driven by the requirement that workers contribute to social security at least on the basis of the minimum wage in both countries.
Gcabo, R et al. (2019) Modelling value-added tax (VAT) in South Africa: Assessing the distributional impact of the recent increase in the VAT rate and options for redress through the benefits system. WIDER Working Paper 2019/13. Helsinki: UNU-WIDER.
Using SAMOD, a tax-benefit microsimulation model for South Africa, this paper examines the joint distributional impact of the increase in the value-added tax (VAT) rate and increases in benefit amounts in 2018. Although poverty and inequality did not increase overall, the poorest still saw a reduction in their purchasing power, as many of those in the lowest decile do not receive any social benefits.
The paper then explores the consequences of eliminating zero-rating in VAT and using the generated revenues to finance new social benefits. The results suggest that a policy package of a uniform VAT and an expanded set of social benefits would lead to reduced poverty and inequality in comparison to the current practice of zero rating of some consumption goods in the VAT.
The findings demonstrate the superiority of using direct taxes and benefits as opposed to provisions in indirect taxes in achieving redistribution.
Kari, S et al. (2019) Combatting debt bias in South African firms: The case for an allowance for corporate equity. WIDER Working Paper 2019/10. Helsinki: UNU-WIDER.
The problem of debt bias can be tackled through either disincentivizing the use of debt financing or incentivizing the use of equity financing. Considering the South African context—in which many firms are highly leveraged and the marginal effective tax rates for using debt financing are significantly lower than those for equity financing—this study explores the case for introducing an allowance for corporate equity.
We show that while such a reform would significantly neutralize the incentives to invest across debt and equity financing, our static simulations—using the NT-SARS CIT-IRP5 panel—show that it would entail a significant revenue loss to the fiscus.
Ebrahim, A et al. (2019) Tax Research in South Africa. WIDER Working Paper 2019/9. Helsinki: UNU-WIDER.
This framing paper has two main purposes. We first provide a brief survey of the economic literature on taxation in South Africa. Second, we attempt to offer some ideas about areas and topics on which more information is needed and which are therefore suitable topics for further research.
Replications of earlier studies conducted using older South African data or from elsewhere, are also considered in this context. We present our thoughts on gaps in the literature and make some recommendations on future research possibilities.
Bargain, O et al. (2019) Learning from the ʻbestʼ: The impact of tax-benefit systems in Africa. WIDER Working Paper 2019/2. Helsinki: UNU-WIDER.
Redistributive systems in Africa are still in their infancy but are constantly expanding in order to finance increasing public spending. This paper aims at characterizing the redistributive potential of six African countries: Ghana, Zambia, Mozambique, Tanzania, Ethiopia, and South Africa.
These countries show contrasted situations in terms of income distribution. We assess the role of tax-benefit systems to explain these differences. Using newly developed tax-benefit microsimulations for all six countries, we produce counterfactual simulations whereby the system of the most (least) redistributive country is applied to the population of all other countries.
In this way, we can decompose the total country difference in income distribution between the contribution of tax-benefit policies versus the contribution of other factors (market income distributions, demographics, etc.).
This analysis contributes to the recent literature on the redistributive role of socio-fiscal policies in developing countries and highlights the role of microsimulation techniques to characterize how different African countries can learn from each other to improve social protection and reduce inequality.
Arancibia, C et al. (2019) Income redistribution in Latin America: A microsimulation approach. WIDER Working Paper 2019/1. Helsinki: UNU-WIDER.
We analyse the effect of taxes and benefits on income distribution of six Latin American countries: Argentina, Bolivia, Colombia, Ecuador, Uruguay, and Venezuela. Our analysis makes use of tax-benefit microsimulation models based on harmonized household representative survey data and developed within the structure of EUROMOD.
The analysis focuses on the relative importance of tax-benefit instruments across countries and on the effect of taxes and benefits on poverty and inequality. The selected countries represent a wide range of cases in terms of the redistributive role of the tax-benefit system with Uruguay providing a large degree of redistribution, whereas the Bolivian system has a very modest role.
We further exploit the advantages of our models and perform a simulation exercise whereby the most progressive income tax system of our set of countries is applied to the rest and assess its effect on inequality and revenue.
Our paper represents the first study making use of microsimulation techniques to assess the redistributive role of tax-benefit systems in the region in a comparable manner, and highlights the advantages offered by microsimulation models to evaluate the effect of policy reforms aiming to improve social protection in the region.
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