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Impact of excise tax on the South African economy: A dynamic CGE approach

Author

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  • Erero Jean Luc

    (Operational Research (OR), Tax, Customs and Excise Institute (TCEI), South African Revenue Service (SARS))

Abstract

Aim/purpose – This paper analyses the impact of excise tax on the South African economy by means of a Dynamic Computable General Equilibrium (CGE) model. We utilised a policy simulation to evaluate the effects of an excise tax, with the results indicating that the rise in excise tax should not impinge on lower revenue households, as long as the greater government revenue flows to those households. Design/methodology/approach – The model applied in this study includes a specific database composed of a Social Accounting Matrix (SAM) constructed from data for the period 2010. A specific indirect tax block was disaggregated in such a way that VAT, excise tax and fuel levy taxes could be analysed. The household sector was further subdivided into 14 different revenue households. Findings – The simulation results indicate that GDP is linked to certain variables, for example absorption and consumption, which are negatively marked by the short run settings. The trend changed positively from the base year 2018 to the following year 2019 with a constant increase until 2023. The main reason for the increase is that the change in investment proportionally affects the total absorption in the market system. Research implications/limitations – The CGE model has been used extensively by the researchers for economic analyses of various projects. The production data constitute the main limitation, as Statistics South Africa has delayed collecting recent data. For this reason, data for the year 2010 were used in the SAM as the database for the CGE model. Originality/value/contribution – The specific economic tool, i.e. the dynamic CGE model, used in this study was seen to be the best model as far as an analysis of the excise tax was concerned. This model has never been used to study the excise tax in South Africa before, although Erero (2015) analysed the effects of increases in VAT through a dynamic CGE model, and found that the percentage increase in VAT would not affect lower revenue households negatively if the higher government revenue flowed to those households.

Suggested Citation

  • Erero Jean Luc, 2019. "Impact of excise tax on the South African economy: A dynamic CGE approach," Journal of Economics and Management, Sciendo, vol. 37(3), pages 23-44, September.
    • Handle: RePEc:vrs:jecman:v:37:y:2019:i:3:p:23-44:n:8
    DOI: 10.22367/jem.2019.37.02
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    References listed on IDEAS

    as
    1. Theresa Alton & Channing Arndt & Rob Davies & Faaiqa Hartley & Konstantin Makrelov & James Thurlow & Dumebi Ubogu, 2012. "The Economic Implications of Introducing Carbon Taxes in South Africa," WIDER Working Paper Series wp-2012-046, World Institute for Development Economic Research (UNU-WIDER).
    2. Alton, Theresa & Arndt, Channing & Davies, Rob & Hartley, Faaiqa & Makrelov, Konstantin & Thurlow, James & Ubogu, Dumebi, 2012. "The Economic Implications of Introducing Carbon Taxes in South Africa," WIDER Working Paper Series 046, World Institute for Development Economic Research (UNU-WIDER).
    3. repec:unu:wpaper:wp2012-46 is not listed on IDEAS
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    More about this item

    Keywords

    excise tax; Dynamic Computable General Equilibrium model; South Africa;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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