Growth and income inequality in South Africa

Abstract

This paper uses a multi-region endogenous growth model to analyze the competing claims of income growth and income distribution in South Africa. The study makes a case for the use of redistributive taxes to offset limited capital mobility between high and low income regions to promote both greater income growth and greater income equality. Market based capital mobility is limited because low income regions are typically characterized by low levels of both physical and human capital which offer little incentive to outside investors. The model estimates annual cross regional convergence rates at <1% in the absence of specific redistributive policies.