Faculty of Economic and Management Sciences
School of Economic Sciences
Department of Economics
Selected Highlights from Research Findings
Environmental Offsets Investments PTY (Ltd) (EOI) is engaged in a pilot project restoring degraded savanna in the area east of Giyani next to the western border of the Kruger National Park. EOI is actively and on an ongoing basis assisted in its endeavours by the Department of Zoology (Conservation Ecology Research Unit) and the Department of Economics.
Preliminary findings of this pilot project - funded by the Department of Environmental Affairs and Tourism - indicate that it is indeed possible to link environmental, economic and social concerns together through a unitary approach, thereby generating a range of synergies and achieving a suite of results.
Ecological restoration has become a very attractive and cost-effective economic development strategy. Parallel but not isolated from this pilot study the partners above, on request of the Limpopo Government, investigated the options of a district-wide ecological restoration initiative in the Sekhukhune District of the province.
Other findings indicate that more than 95% of the population of the district is eager to participate in a restoration project and that they are convinced that restoration will contribute to their quality of life.
As a result of both the pilot study and research conducted, the Limpopo Government accepted ecological restoration as one of its key strategic areas as described in the Premier’s Provincial Growth and Development Study and awaits full-scale implementation.
Contact person: Prof JN Blignaut.
The Investment and Trade Policy Centre (ITPC) at the Department of Economics created a gravity model for use by different divisions within the Department of Trade and Industry (dti). The gravity model allows the user to determine the most efficient sectors in terms of exports to various trading partners of South Africa. It is also used for policy simulation.
This study’s main objective was to develop a methodology, or working tool for analysing international trade flows, based on the annual bilateral trade volume between South Africa and its main trading partners.
The model uses panel data econometrics and is based on trade between South Africa and 147 trading partners within 33 sectors. The general idea behind the gravity model stems from the gravity theory in physics.
A flow is regarded as the resultant of the attraction between two objects. When the flows concern international trade, the objects are the exporting and importing countries. The “masses” of the countries are the sizes of their economies, from which a certain potential trade flow results.
The larger the economies of the concerning countries, the larger the trade among these countries will be. This model is a first for South Africa and is used for trade policy analysis in the dti.
This model shows both the actual and potential trade between countries. A comparative trade analysis between countries is thus very easy and show where the potential trade is not exploited to the full
Contact person: Prof AC Jordaan.
The Bureau for Economic Policy and Analysis (BEPA) – the contract arm of the Department of Economics – and the National Treasury in conjunction with the South African Revenue Services (SARS) joined forces in 2003 to develop tax models that can be used to simulate the outcomes of tax policies as well as predict tax income.
This micro model brings a new dimension to tax analysis because the profile of taxpayers (both individuals and corporates) is taken into consideration when tax excesses are planned. Previously, the profile of individual taxpayers was strictly limited to that of only tax filers while in the case of corporate institutions their profile was also limited to the information provided in their tax submissions.
Using the micro model constructed by BEPA, it is now possible to calculate the result of changes to household taxes in a specific region, age group, gender and income category, while in the case of companies, survey data in addition to the filer data, broadened the scope of indicators used in simulation and revenue forecasting. The impact thereof is that much more accurate analysis and forecasting techniques can now be implemented.
In 2006 this model was further expanded with funding from SARS and the National Research Foundation (NRF). The expansion includes an additional revenue source namely Value Added Tax (VAT).
Also, the corporate income tax model has been expanded to a full sectoral model which improves revenue forecasting given the sectoral differences in economic performance.
The most valuable contribution of this model is the fact that tax predictions can now be made with much greater accuracy. In the past, relevant authorities mainly used macro models, which often did not make provision for specific societies or sectors in the economy.
This meant that the different influences prevalent in those societies or sectors were not reflected accurately. The impact thereof was that revenue be either under- or over estimated with severe consequences for the economy – especially the liquidity position of households and their saving behaviour.
BEPA feeds the outputs of its macro model into the micro simulation model, which means that predictions are more detailed. This in turn leads to improved quality. Researchers are hopeful that this will help fiscal authorities to solve the dilemma they faced in the past as a result of inaccurate projections
Contact person: Prof NJ Schoeman.
South Africa is blessed (cursed?) with cheap and abundant energy in the form of coal. However, the quality of our coal is not good, so that its consumption is not environmentally neutral. Its combustion contributes to the increase in the concentration of atmospheric carbon, which is linked to climate change.
The market system, working through prices that are determined by demand and supply, is unable to take care of the coincidental side effects of our excessive energy consumption. This is where taxes could play a meaningful role in correcting for such discrepancies.
The Department of Economics developed an integrated general equilibrium model for modelling the impact of a variety of policy instruments, such as environmental taxes, based on the behaviour of households and industries.
The aim with such a tax design is not primarily to raise the revenue for the fiscus, but rather to reduce the environmental (carbon) footprint; stimulate economic growth; and combat poverty.
In their studies they found that a tax on either the consumption of energy or on carbon emissions, recycled to the rest of the economy through a reduction in the tax on food (reduction in VAT), would achieve a triple-dividend in South Africa.
This research has lead to two academic publications, one in a highly acclaimed international journal, while the work is currently refined in conjunction with the National Treasury with the view to get the said taxes incorporated in legislation in South Africa
Contact person: Prof JH van Heerden.
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