Title: Optimal tax rates in South Africa: new empirical insights to the existing debate

Authors: Kambale Kavese; Andrew Phiri

Addresses: Department of Economics, Faculty of Business and Economic Studies, Nelson Mandela University, Port Elizabeth, 6031, South Africa ' Department of Economics, Faculty of Business and Economic Studies, Nelson Mandela University, Port Elizabeth, 6031, South Africa

Abstract: The current study contributes to the existing debate on optimal taxes in South Africa by estimating Scully's optimal tax framework using the ARDL framework applied to quarterly data collected between 2002Q1-2017Q4. Notably, our study differs from previous studies in two ways. Firstly, our current study distinguishes between revenue-maximising and growth-maximising optimal tax rates. Secondly, we go beyond the traditional reliance on aggregated tax rates and provided optimal tax estimates for six sub-categories of tax rates employed by South African fiscal authorities (i.e., taxes on income, profit and capital, taxes on property, VAT, general fuel levy, excise duty, and taxes on international trade). Our empirical results indicate that fiscal authorities have generally implemented revenue-maximising tax policy during economic recessions whilst leaning towards growth-maximising tax rates during expansions periods. Based on these findings, the paper manifests policy advice for South African fiscal authorities in their quest for improving the country's economic performance.

Keywords: optimal taxes; disaggregated taxes; ARDL; South Africa; emerging market economies; Sub-Saharan Africa; SSA.

DOI: 10.1504/IJSE.2020.107861

International Journal of Sustainable Economy, 2020 Vol.12 No.1, pp.44 - 60

Received: 02 Aug 2019
Accepted: 22 Oct 2019
Published online: 25 Jun 2020 *

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