Can South Africa afford to become Africa's first welfare state?

James Thurlow
fcnd discussion paper brief

This brief examines the economy-wide impact of implementing and financing a universal or basic income grant (BIG) in South Africa. The various financing scenarios suggested by the proponents of the grant are presented, and these are compared using an applied general equilibrium model for the South African economy. The results indicate that the required changes in direct and indirect tax rates needed to finance the grant without increasing the government deficit are substantially higher than currently predicted.... . These results suggest that the possibility of South Africa becoming the continent's first welfare state is as likely to rest with the macroeconomic impacts of financing the grant, as with the ability of the grant to address the country's prevailing poverty." -- From Text.