Possible welfare benefits of basic income support: Evidence from a benefit incidence analysis in South Africa

Abstract

Abstract The study investigates the potential welfare effect of basic income support (BIS) in reducing poverty and inequality in South Africa. Using the 2017 labour force survey and a benefit incidence analysis, we consider three BIS scenarios: (i) universal income support for those aged between 18 and 59; (ii) only those who are unemployed receive the benefit; and (iii) only unemployed individuals in extremely poor households defined by the food poverty line receive the benefit. Results show that BIS can reduce poverty and inequality. However, the specific effects of the BIS will depend on the targeting scenario considered. The universal BIS is more costly and has higher leakage, with more benefits going to the non‐poor. However, this universal support has the biggest overall impact on poverty and inequality reduction because more South Africans receive income support under this scenario. Meanwhile, targeting only the unemployed and the impoverished makes the BIS more pro‐poor and progressive, as well as mitigating the leakage of the benefit to the non‐poor. This would, however, require that an appropriate targeting mechanism be in place.