Finding the optimum level of taxes in South Africa: A balanced budget approach

Abstract

This article is primarily concerned with assessing the optimum rate of government intervention by means of tax revenue policies that would facilitate the full growth potential of the South African economy, using time series data for the period 1960 to 2007. In the analysis a balanced budget is assumed, which means that the level of expenditure is set equal to tax collection with no provision for borrowing. The results indicate that the actual average tax burden far exceeds its optimum level, and that the authorities will have to consider adjusting tax policy accordingly in order to improve the growth performance of the economy.