Annex I. Definitions of Progressivity, Data Sources, and Caveats
1. Progressivity is measured by comparing the share of a specific tax/benefit that is collected/paid by each decile of the income distribution with the share of total income each decile receives and the 45-degree line. Relative and absolute progressivity of a tax or a benefit is defined as follows:
A tax is progressive/regressive in relative terms if the cumulative share of the tax paid by the households accounting for X percent of households is lower/higher than their share in income as show by the market income curve. A tax is progressive/regressive in absolute terms if the cumulative share of the tax paid by X percent of the households is less/more than X percent.
A benefit is progressive/regressive in relative terms if the cumulative share of the benefit received by the households accounting for X percent of households is higher/lower than their share in income as shown by the market income curve. A benefit is progressive/regressive in absolute terms if the cumulative share of the benefit received by X percent of the households is more/less than X percent.
2. The National Income Dynamics Survey (NIDS) waves and fiscal data from the National Treasury and the SARB are the main data sources. The NIDS cover four 12 months periods in 2008, 2010, 2012, and 2014 (i.e., Waves 1 through 4, respectively) and contains data on household income, expenditures, cash benefits, and utilization of education and health services. The information is complemented with budget spending data primarily to estimate the value of certain benefits such as the average amount paid for several grant types, the average spending on several levels of education and health. Since there is limited information on the amounts paid in taxes in the surveys, taxes such as the personal income tax are computed based on the corresponding tax schedule for the given year obtained from the corresponding national budgets.
3. The methodology is subject to important caveats. For health, education, and other free services more generally, the value of government services does not consider quality. Therefore, the value to recipients may be considerably less than the cost to the government if quality is poor. A similar concern is valid for cash benefits if only a fraction were to get to the intended beneficiaries. The accounting approach used does not ponder behavioral responses that changes in taxes and spending may trigger among individuals or households. Due to data and methodological constraints, the analysis also excludes important taxes (i.e., corporate income, international trade, and property taxes) and spending categories (i.e., infrastructure investments and the certain grants which reach a lower number of beneficiaries such as the care dependency grant).
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Prepared by Alejandro Simone and Vimal Thakoor; reviewed by Ana Lucía Coronel.
Including discouraged workers, the rates increase to 36.4 percent and 67.4 percent for the youth.
The coverage of the vulnerable population by the social grants has been expanded by lowering and equalizing the age in which men become eligible for the grant from 65 to 60 years old between FY 2008/09 and 2010/11, and increasing the age until which children can get a child grant from 14 years old in FY 2008/09 to 18 years of age by the 2012/13 budget.