Original Research

The economic consequences of a fuel levy reform in South Africa

Ramos Mabugu, Margaret Chitiga, Hammed Amusa
South African Journal of Economic and Management Sciences | Vol 12, No 3 | a219 | DOI: https://doi.org/10.4102/sajems.v12i3.219 | © 2011 Ramos Mabugu, Margaret Chitiga, Hammed Amusa | This work is licensed under CC Attribution 4.0
Submitted: 17 June 2011 | Published: 17 June 2011

About the author(s)

Ramos Mabugu,, South Africa
Margaret Chitiga, Human Sciences Research Council, South Africa
Hammed Amusa, Financial and Fiscal Commission, South Africa

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Abstract

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 the 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.

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