Income Distribution and the Potential of Redistributive Systems in Africa: A Decomposition Approach

Redistributive systems in Africa are still in their infancy but are expanding in order to finance increasing public spending. This paper aims at characterising the redistributive potential of six African countries: Ghana, Zambia, Mozambique, Tanzania, Ethiopia and South Africa. These countries show contrasted situations in terms of income distribution. We assess the role of tax-benefit systems to explain these differences. Using newly developed tax-benefit microsimulations for all six countries, we produce counterfactual simulations whereby the system of the most (least) redistributive country is applied to the population of all other countries. In this way, we can decompose country differences in income distribution into the contribution of tax-benefit policies and the contribution of other factors (market income distribution, demographic structure, etc.). This analysis complements the recent literature on the redistributive role of socio-fiscal policies in developing countries and highlights the advantages of microsimulation and decomposition techniques to characterise how different African countries can learn from each other to improve social protection and reduce inequality.