Can Redistribution Keep Up with Inequality?

Can Redistribution Keep Up with Inequality? Evidence from South Africa, 1993-2019

In this paper, Aroop Chatterjee, Léo Czajka and Amory Gethin shed new light on the evolution of poverty and income inequality in South Africa since the end of the apartheid regime. The authors build a new database on the distribution of national income since 1993, which is fully consistent with macroeconomic growth figures and allocates the entirety of government revenue and expenditure to individuals. They find a dramatic rise in income disparities: 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 between Black and White South Africans since the end of apartheid has been largely driven by the boom of top Black income groups and is only marginally reduced by taxes and transfers.

Key findings

• There has been a dramatic divergence in the growth of top and bottom income groups in the past decades: between 1993 and 2019, the pretax income of the top 1% rose by 50%, while that of the poorest 50% fell by a third.
• As a result, South Africa is today one of the most unequal countries in the world: in 2019, the top 10% received about two-thirds of national income, while the poorest 50% received less than 5%.
• The rise of pretax income inequality, however, has coincided with substantial increases in government redistribution. The rise of progressive income taxation, combined with the progression of cash transfers and investments in education and health, have succeeded in mitigating almost completely the income losses of the poor.
• Racial inequality in South Africa continues to stand at extreme levels and has only marginally decreased since 1993. Much of the reduction in the racial income gap between Black and White South Africans has been driven by the growing incomes of top Black income earners, while the majority of the poorer Black population has not seen their living standards significantly improve.

Policy recommendations

Despite noticeable efforts to implement policies dedicated at tackling South Africa’s extreme inequality legacy, successive South African governments have failed to reduce the income disparities inherited from the apartheid regime. The recently exposed episode of state capture suggests that policies reinforcing transparency and accountability of the rulers are probably a pre-requisite.  Then enabling a better distribution of pretax income growth will inevitably require ambitious policy packages enhancing access to good quality services (education, health, transports, etc.) and well-paying jobs. In this respect, while there is no silver bullet to the complex issues at stake, fiscal policy designed to reducing persisting wealth disparities should seriously be considered.

Figure: Redistribution, inequality, and growth. Cumulated income growth by percentile, 1993-2019

The figure represents the cumulated income growth rate by percentile between 1993 and 2019  in terms of factor national income and posttax national income.

Contacts

Authors

• Aroop Chatterjee (Southern Centre for Inequality Studies; World Inequality Lab): aroop.chatterjee@wits.ac.za.
• Léo Czajka (Université catholique de Louvain; World Inequality Lab): leo.czajka@uclouvain.be.
• Amory Gethin (Paris School of Economics – EHESS; World Inequality Lab): amory.gethin@psemail.eu

Media inquiries

• Olivia Ronsain, World Inequality Lab: olivia.ronsain@psemail.eu; +33 7 63 91 81 68

Acknowledgments

The authors thank Facundo Alvaredo, Pierre Bachas, Thomas Blanchet, Lucas Chancel, Ignacio Flores, Rosanne Logeart, Marc Morgan, Thomas Piketty, and Tom Raster for their comments and advice.