Abstract

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.

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