Poverty, Inequality and the Role of Social Grants: An Analysis using Decomposition Techniques

Stellenbosch Working Paper Series No. WP15/2009

Author(s): Paula Armstrong, Cobus Burger

JEL Classification: I3, I38, I32, D63

Keywords: Welfare and Poverty, Government Policy, Provision and Effects of Welfare Programmes, Measurement and Analysis of Poverty, Inequality

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Despite South Africa’s transition from apartheid in 1994, the social landscape is still fragmented along racial lines. However, South Africa has an impressive social grants system by international standards, with social assistance spending as a percentage of GDP comparing to Western European countries during the 1980s (the height of the welfare state). This paper investigates the impact of social grants poverty and inequality in South African. Using the Income and Expenditure Survey of 2005 (IES2005) the normalized Foster-Greer-Thorbecke (FGT) measure and the General Entropy (GE) measure (to assess the impact of social grants on poverty and inequality, respectively), it is found that social grants have a considerable impact on poverty, and that this impact increases as the poverty measure being used becomes more sensitive to the severity of poverty. In terms of inequality, it is found that social grants have a negligible impact. The reason for this is that inequality is largely driven by the upper end of the income distribution – a group who do not receive social grants.