Applied Economics Lunch Seminar

Du 04/05/2021 de 12:30 à 13:30

GETHIN Amory (PSE)

Inequality, Redistribution, and Growth: Evidence from South Africa, 1993-2019

Can government redistributive policies successfully curb rising inequality and promote inclusive growth in emerging economies? This paper sheds new light on this question by combining survey, tax, and historical administrative data to evaluate the impact of taxes and transfers on the distribution of growth in South Africa since the end of the apartheid regime. Our new database is fully consistent with macroeconomic totals reported in the national accounts and allocates the entirety of government revenue and expenditure to individuals, including indirect taxes and in-kind transfers, with unprecedented level of detail. We document a dramatic divergence in the growth of top and bottom income groups: between 1993 and 2019, the pretax income of the top 1% rose by 50%, while that of the poorest 50% fell by a third. However, the widening of pretax income gaps has been almost fully compensated by the growing size and progressivity of the tax-and-transfer system, effectively mirroring a “chase between rising inequality and enhanced redistribution”. The decline of racial inequalities since the end of apartheid has been entirely driven by the boom of top Black income groups and is only marginally reduced by taxes and transfers. Our results have important implications for fiscal policy, the measurement of poverty, and the analysis of the link between inequality and growth.