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South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

S. Afr. j. econ. manag. sci. vol.12 n.3 Pretoria Oct. 2009




The economic consequences of a fuel levy reform in South Africa



Ramos MabuguI; Margaret ChitigaII; Hammed AmusaI

IFinancial and Fiscal Commission, Midrand
IIDepartment of Economics, University of Pretoria




This paper assesses the economic effects of a hypothetical fuel levy imposed by South African provinces. The welfare effects of increasing the fuel levy by 10 per cent are negative but very small. Similarly, the marginal excess burdens for efficiency and equity (poverty) are quite low, suggesting much smaller impacts of the intervention on both economic activity and equity. Furthermore, a fiscal policy reform that raises fuel levy by 10 per cent is progressive as it has stronger negative effects on higher income households than on lower income households. A potential source of instability for the macroeconomy and total government revenue is the negative effect on economic activity induced by the fuel levy increase. The remedies suggested are that policymakers should make tax room elsewhere in the intergovernmental fiscal system to accommodate the fuel levy increase.

Keywords: Fuel levy; Intergovernmental Fiscal Relations; Social Accounting Matrix

JEL C4; D5: D6; E6; H2



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