Fiscal incidence of social spending in South Africa, 2006

Stellenbosch Working Paper Series No. WP10/2009

Author(s): Servaas van der Berg

JEL Classification: H50, D63, I31, I32

Keywords: Fiscal incidence, Social spending, Poverty, Inequality, South Africa

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This paper presents the findings of a study undertaken for the South African National Treasury regarding the expenditure incidence of social spending in South Africa in 2006, and also regarding changes in incidence in the period following democratisation. Concentration ratios and concentration curves show that there have been considerable shifts in social spending incidence in the period 1995 (the year after democracy) and 2006, the most recent observation. In particular, social spending grants have become a major tool of targeting resources to the poor. Although the poor now get considerably more of social spending than their population share, the very skew underlying income distribution means that the post-fiscal situation still is one with great inequality. Moreover, evidence is presented that spending efficiency for social spending is low, thus there is only a tenuous link between social spending and social outcomes. Thus great shifts in social spending have had a limited impact on poverty and inequality in South Africa.