National and regional impacts of an increase in value-added tax : a CGE analysis for South Africa
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Date
Authors
Roos, Elizabeth Lousia
Horridge, J. Mark
Van Heerden, J.H. (Jan Horn), 1957-
Adams, Philip D.
Bohlmann, Heinrich R.
Kobe, Kgatedi Kenneth
Vumbukani-Lepolesa, Bokang
Journal Title
Journal ISSN
Volume Title
Publisher
Wiley
Abstract
The South African National Treasury expected a revenue shortfall of R48.2 billion in 2017/18 and proposed tax policy measures to raise an additional R36 billion in 2018/19. A key component to raise the additional revenue was a 1% point increase in the VAT rate to 15% effective from 1 April 2018. The increase in the VAT rate was not welcomed as it would increase the cost of living, especially for the poor. We investigate the potential economy-wide and regional impacts of raising VAT and increasing public spending on education and health. We do this by developing and applying a multi-regional model of the South African economy that includes detailed tax and spending features. In this model, when we increase VAT, the impacts are driven by the direct shock to the model, accompanied by differences in regional economic activity. We find that effects on GDP vary between regions but are generally negative.
Description
Keywords
Value added tax (VAT), Gross domestic product (GDP), South Africa (SA), National impact, Regional impact
Sustainable Development Goals
Citation
Roos, E.L., Horridge, J.M., Van Heerden, J.H. et al. 2020, 'National and regional impacts of an increase in value-added tax: a CGE analysis for South Africa', South African Journal of Economics, vol. 88, no.1, pp. 90-120.