Give and Take between Households and the State: Development and Application of a Benefaction – Contribution Ratio

Abstract

This study defines a “Benefaction–Contribution Ratio” (BCR), describing the extent to which households are net beneficiaries of or contributors to the economy in relation to income and consumption. Such issues are central to assessment and targeting of policies such as social welfare and taxation. We apply the ratio to 21,144 South African households. South Africa employs various taxation‐funded social grants and subsidized services. A central question is how such transfers affect real household income and consumption. We find that the constitution of social transfers as a function of tax adjusted earned income significantly augments household buying power. Furthermore, we hypothesize and find a negative curvilinear shape which has implications for design of taxation and welfare. This constitution and distribution of this ratio may be useful for international benchmarking and household planning, and as an economic predictor of outcomes such as job seeking, entrepreneurial behavior, family planning, migration, and tax evasion.