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The 1999 pre-tax Gini Coefficient of 0.56 is comparable with a Gini Coefficient of 0.59published by Statistics South Africa based on the 1995 household survey, and takingincome and expenditure into account (Stats SA, 2000: 83). The difference is attributed tothe aggregated nature of the household data contained in the SAM.Table 6 shows that ZEROALLSAV (the simulations where VAT on all commodities isincreased to 16 percent) is the only simulation that generated a pre-tax equity gain. BothZEROFOODSAV and ZERODIRECTSAV appear to result in a higher level of inequalitypre-tax. Low -income households provide mainly unskilled and semi-skilled labor, whichare more adversely effected by zero-rating food. In the deficit financing simulation thisresult can be traced back to the loss of unskilled factor income due to the decline ininvestment demand and hence construction services, while in the case of the direct taxfinanced zero rating simulation, capital and high skilled labour appear to benefit morethan unskilled labour.However, ZERODIRECTSAV results in the largest post-tax equity gains. Again, theability of direct taxes to generate progressiveness is illustrated. The L-measure gives thecombined change in income distribution. Therefore, zero-rating food, while increasingdirect taxes proportionately can improve the inequality of income distribution in SouthAfrica.The overall impact on welfare is measured with an equivalent variation measurement.Figure 6 gives an illustration of the consumption value at base-year prices in the BASEcase and for the simulations the equivalent variation as a percentage of the baseconsumption value. A positive EV result indicates an improvement in consumptionvalue, which in turn indicates an overall improvement in welfare. A negative indicates anoverall decline in welfare. Figure 6 shows that zero-rating food leads to an improvementin the consumption value of low- income households – the EV increased with up to 1.5percent under ZERODIRECTSAV. Without a revenue replacement strategy theconsumption value of high-income households is increased with up to 2.4 percent; with arevenue replacement strategy the EV value for high-income groups decline. Whenincreasing VAT on other commodities the EV value decline with 1.5 percent. The mainreason for this can be seen from Table 4. Factor income of high-skilled labor and capitaldecline to a large extent and as high- income households receive the largest percentage oftheir income from high-skilled labor and capital it impacts most on this group.17
Figure 5: The Change in Welfare as Measured by EVPercentage Change in Equivalent Variation%3.002.502.001.501.000.500.00-0.50-1.00-1.50-2.00hhd0hhd1hhd2hhd3hhd4hhd5hhd6hhd7hhd8hhd9Household DecilesZERODIRECTSAV ZEROFOODSAV ZEROALLSAVSource: 1999 Base case Thurlow and Van Seventer (2002)CGE SimulationsThe changes in welfare are driven by the combined changes in prices, production,employment and factor prices (and therefore income). Figure 6 shows the change inincome for all households.Figure 6: The Percentage Change in Household IncomePercentage Change in Household Income0.20.10-0.1hhd0hhd1hhd2hhd3hhd4hhd5hhd6hhd7hhd8hhd9R-0.2-0.3-0.4-0.5Household DecilesZERODIRECTSAV ZEROFOODSAV ZEROALLSAVSource:CGE Simulations18
Page 1 and 2: TIPSF O R U M20032 0 0 3P A P E R S
Page 3 and 4: Figure 1: The Portion of Income Spe
Page 5 and 6: 3. Using a Computable General Equil
Page 7 and 8: (2) Increased VAT rate on Commoditi
Page 9 and 10: 3.5.1 RegressivenessRegressiveness
Page 11 and 12: initial consumption value (EVTAB).
Page 13 and 14: Figure 2 shows the impact of zero-r
Page 15 and 16: Table 4: Changes in Factor Income 3
Page 17: Zero-rating food without a revenue
Page 21 and 22: However, the overall welfare of low
Page 23: SARTORIUS VON BACH, H.J. and Van Zy

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