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Tax Policies and Informality in South Africa

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  • Eliane El Badaoui
  • Riccardo Magnani
Abstract
Using a micro–macro simulation approach, we evaluate the effects of different tax policies in South Africa. The country is characterised by a high unemployment rate, while the informal sector remains relatively small. The effects of the simulated tax policies are quantified at the macro level, on the individual's labour supply choices, and on income distribution, inequality and poverty. We find that the equity‐efficiency trade‐off can be improved by introducing a system combining a sufficiently high flat rate and a lump‐sum transfer paid only to formal workers. Interestingly, even though it increases the informal sector, this reform reduces inequality and poverty through a reduction in unemployment. © 2019 John Wiley & Sons, Ltd.

Suggested Citation

  • Eliane El Badaoui & Riccardo Magnani, 2020. "Tax Policies and Informality in South Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(3), pages 267-301, April.
    • Handle: RePEc:wly:jintdv:v:32:y:2020:i:3:p:267-301
    DOI: 10.1002/jid.3416
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    Cited by:

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    2. Favourate Y. Mpofu & Tankiso Moloi, 2022. "Direct Digital Services Taxes in Africa and the Canons of Taxation," Laws, MDPI, vol. 11(4), pages 1-20, July.
    3. Joseph Nyamapheni & Zurika Robinson, 2021. "Determinants of Tax Morale: Cross-Sectional Evidence from Africa," The Journal of Accounting and Management, Danubius University of Galati, issue 3(11), pages 84-99, December.

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    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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