Generational accounting : a comparison between various taxes' incidence on the young and old in South Africa

Abstract

This article focuses on the applicability of intergenerational accounting to contribute towards more effective fiscal policy for the correction of wealth imbalances in South Africa. Three scenarios are tested using a general equilibrium model with overlapping generations. An increase in the tax on capital income has a positive effect on the distribution of personal wealth between rich and poor, but it decreases total production. An estate tax improves the current distribution of wealth with much more positive results. Both total consumption and the total capital stock increase. The welfare position of the rich is largely unaffected while that of the poor increases substantially. Lastly, it is shown that an increase in indirect taxes produces negative results. The welfare of the poorer group decreases and at the same time there is a decline in the general level of welfare due to lower levels of production and consumption in the economy.