Abstract:
This paper explores the potential of a negative income tax to tackle South Africa’s dual challenges of
poverty and income inequality. Using a static, arithmetic microsimulation model with NIDS Wave 4 as
the base dataset, we simulate a negative income tax in which recipients receive an income subsidy
proportional to their income if it is below a set amount and a guaranteed subsidy if they have zero
income. Two different sizes for the guaranteed subsidy are simulated, both pegged to recent poverty
lines. The simulations show that the negative income tax significantly reduces both inequality and
poverty levels, but that this necessarily comes at a high cost.
