Assessing the impact of government grants on poverty and inequality: a microsimulation study in South African

Abstract

Poverty and inequality are the major challenges of the post-apartheid government of South Africa. In order to address these challenges, the government designed a range of policies and strategies including social grant programs. The main objectives of social grants in South Africa focus on relieving poverty and enabling the previously disadvantaged communities to access basic social services. However, poverty and inequality remains high in the country (statistics SA,2014). The main objective of this study is to critically examine the impact of selected government grant programs on poverty and inequality in South Africa. The study estimates households' consumption function using the third wave of National Income Dynamics Study (NIDS) of South Africa and simulates the impacts of government grant on poverty and inequality. It examined how these impacts vary across population groups, gender and geographical locations. The findings indicate that monthly government grants decrease the head count poverty by between 3.7% and 4.4%, the poverty gap by between 1.9% and 2.7% and severity of poverty by between 1.2% and 1.9%. Government grants also reduce the odds of being in a state of poverty by approximately 59.1%. In terms of inequality, the findings show that government grants have little to do with reducing inequality (1.6%).