Racial Inequality and Redistribution in Post-Apartheid South Africa

Following the abolishment of all discriminatory laws, South Africa’s first universal democratic election took place in 1994 and marked the end of centuries of institutions that legally favored White settlers and their descendants at the expense of other racially identified groups. This radical transformation held great promise for the previously oppressed populations, who were becoming legally entitled to prosperity. In the following decades, major reforms were carried out by successive governments, with the objective of reducing the extreme levels of inequality inherited from Apartheid. Yet, in the absence of comprehensive statistics on inequality and the distributional incidence of taxes and transfers, we still lack a global view on trends in inequality over the past decades.

In a new paper, Léo Czajka and Amory Gethin study post-Apartheid inequality dynamics in South Africa using a new microdatabase that combines survey, tax, national accounts, and budget data from 1993 to 2019.

KEY FINDINGS:

• South Africa remains the most unequal country in the world today. The top 10% pretax income share reaches 70%, while the Gini coefficient of pretax income inequality is 0.8.
• Pretax inequality in 2019 was just as high as in 1993. From 1993 to 2005, inequality rose, racial disparities widened, and redistribution stagnated. Thereafter, pretax inequality gradually fell back toward its 1993 level.
• Racial pretax inequality has declined considerably. However, almost half of this reduction was due to the exceptional growth of top 10% Black incomes (relative to growth of lower deciles).
• Yet, racial inequality continues to be extreme. In 2019, average per capita income among Whites was close to the average per capita national income of Denmark, while average income among Black South Africans was close to that of Bangladesh. Disparities are striking as well among Black South Africans, with average income in the top 10% comparable to average income in Italy, while the average income of the bottom 90% is similar to that of Zimbabwe.
• The tax-and-transfer system has become significantly more progressive starting in the mid-2000s. The net transfer received by the poorest 50% has increased by 50% overall. As result, overall posttax income inequality has declined significantly.
• Government redistribution between racial groups has not increased, however. Rapid growth of top Black incomes shifted 20% of taxes from Whites to top Black earners, who have been the main contributors to the growth of the welfare state.

AUTHORS

• Léo Czajka, EU Tax Observatory (Paris School of Economics)
• Amory Gethin, World Bank, World Inequality Lab (Paris School of Economics)

PRESS

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