The distributional impact of tax and benefit systems in five African countries

Abstract

PurposeThe paper aims to assess the effects of taxes and benefits on inequality and poverty in five African countries: Ghana, Mozambique, South Africa, Uganda and Zambia.Design/methodology/approachThe authors use newly developed micro-simulation models to analyse the distribution and composition of incomes.FindingsThe study's results suggest that income-based measures result in higher levels of poverty and inequality than consumption-based measures. The country with the most effective system in terms of reducing income inequality and poverty is South Africa; in Ghana, the tax-benefit system was found to have the smallest impact on inequality. The systems of Uganda, Mozambique and Zambia were estimated to have no poverty-reducing properties; many individuals remain largely unaffected by them as they are too poor to pay direct taxes, and benefits are very modest and narrowly targeted.Originality/valueWhile consumption data are crucial for measuring poverty, income data are becoming vital for assessing the extent to which tax-benefit policies achieve redistribution in economies where own-consumption is becoming less significant and the share of people in employment is increasing. To the best of the authors' knowledge, this is the first study where poverty and inequality are measured in both terms, for several African countries in a common framework.

Guest editorial: Old and New Challenges for Welfare Regimes – A Global Perspective

“…Gasior et al (2021) examine the very relevant link between taxation and social protection in five low- and middle-income African countries (Mozambique, Uganda, Ghana, Zambia and South Africa). By using state-of-the-art tax-benefit microsimulation models (based on EUROMOD), the authors examine the composition and distribution of incomes and shed light on the role of tax-benefit systems in poverty and inequality in Africa.…”

“…The results show Estonia clustered close to the Nordic countries, Latvia, Lithuania, Croatia and Slovenia close to the Bismarckian welfare model and Bulgaria as an outlier close to the Mediterranean welfare regime. Gasior et al (2021) examine the very relevant link between taxation and social protection in five low-and middle-income African countries (Mozambique, Uganda, Ghana, Zambia and South Africa). By using state-of-the-art tax-benefit microsimulation models (based on EUROMOD), the authors examine the composition and distribution of incomes and shed light on the role of tax-benefit systems in poverty and inequality in Africa.…”

“…cash transfers, care, youth, taxation, education, health and others). The studies examine responses and challenges of social policy systems in Mozambique, Uganda, Ghana, Zambia and South Africa (Gasior et al , 2021), Brazil and Mexico (Tomazini, 2021), Estonia, Latvia, Lithuania, Croatia, Slovenia and Bulgaria (Broka and Toots, 2021), Ecuador (Ubasart-González and Minteguiaga, 2021), India (Nakray, 2021), Japan (Milly, 2021), Austria (Landini, 2021), Mexico (Martínez-Martínez et al , 2021), Greece (Burgi and Kyramargiou, 2021) and 15 post-Soviet states [1] (Panaro, 2021). Most papers refer to emerging welfare states, and some discuss social policies in more consolidated social policy systems, such as the cases of Austria, Greece and Japan, which are currently facing challenges that involve citizens from emerging welfare states.…”

The mitigating role of tax and benefit rescue packages for poverty and inequality in Africa amid the COVID-19 pandemic

“…For more details on the different countries' tax-benefit systems, refer to the respective SOUTHMOD country reports. 4 Gasior, Leventi, Noble et al (2021) and Bargain et al (2021) provide further insights into how the redistributive power of these systems compare across countries.…”

“…However, most of the literature concentrates on developed countries (see amongst others Alesina and Giavazzi 2013;Auerbach and Feenberg 2000;Dolls et al 2012;Dolls et al 2020;Kniesner and Ziliak 2002;Leventi and Picos 2019;McKay and Reis 2016;Paulus and Tasseva 2020). Evidence on how African countries fare in terms of the power of their redistributive systems in general, and in how far they are prepared to cope with shocks, is limited (Bargain et al 2021;Gasior, Leventi, Noble et al 2021;Devarajan et al 2013). We address this gap in the literature by estimating how automatic stabilizers operated across the income distribution of five African countries during the crisis, and discuss why their redistributive power is so limited.…”