Working Paper
The macroeconomic effect of fiscal policy in South Africa

This paper analyses the macroeconomic effect of legislated personal income tax changes in South Africa over the 1996–2019 period. We identify personal income tax shocks using a narrative approach and incorporate these shocks in a proxySVAR model.

Our analysis shows that permanent changes in personal income taxes have a larger and significant effect on output through both the investment and consumption channels. We also find that personal tax cuts have a persistent effect on output through the investment channel in the 1996–2010 sub-sample.