Abstract
This paper provides evidence on the macroeconomic effects of personal income tax changes in South Africa. We identify episodes of policy changes using narrative in- formation from legislative documents. Analysis of quarterly macro data in 1996-2019 shows that personal income tax cuts have an initial contractionary impact on output, consumption, investment, and employment. These effects reflect the crowding out of credit and investment by the private sector as it finances tax cuts. As a result, firms reduce their labour demand, targeting unskilled labour, potentially contributing to in- creased inequality in the country. These effect reverse, however, to expansionary from the seven quarter onward.
JEL classifications: C32, E23, E62, H2
Keywords: Tax policy, narrative approach, macroeconomics
by 