A basic income grant for South Africa: more money in poor people’s pockets, but at a heavy cost

ANALYSES of the implications of extending income support measures in South Africa, including a basic income grant, have focused on one of three things: how much it will cost, calculations about how much revenue would need to be raised (but without assessing the ripple effects), and how it might affect the incomes of the rich and the poor.

Each of these provide important contributions. But they don’t address the dynamic and long-term implications of basic income support options on the country’s economy and its finances. What’s been missing is a modelling that compares – or tests – the impact of the different policy choices and their permutations and how these are funded and who benefits and who loses.

In a recent paper we attempt to do just that.

Our model allows for both positive and negative economic effects of higher direct transfers to households. The model thus captures feedback effects between government