Despite several efforts to promote pro-poor growth, South Africa remains one of the most unequal countries in the world. While the country's colonial history and apartheid are known to have contributed to this inequality level, the nature and dynamics of its impact on society are yet to be fully understood.

Literature suggests that better institutions and lower level of inequality improve subjective wellbeing. However, evidence that examine how the interaction between these two variables explain variation in wellbeing is relatively scarce. This study will thus contribute to a deeper understanding of inequalities in South Africa. 

This research project has two main objectives:

1. Explore how variations in governance (such as audit outcomes) across South Africa's district municipalities explain the variation in the well-being of individuals.
2. Investigate how the interaction between the variation in governance across local government municipalities and inequality among individuals explains variation in subjective well-being.

To investigate the interactions between the quality of institutions and of the governance, the level of spatial inequality and the subjective wellbeing, researchers will use the National Income Dynamics Study (NIDS), a nationally representative survey of individuals across South Africa, which is repeated over five waves between 2008 and 2017. They will also use audit outcomes of local municipalities to proxy for the quality of governance.

You will find below the research paper related to this project:

• Spatial Inequality, Sub-regional governance and Subjective Well-being - The case of South Africa

Many of the measures on quantifying progress by countries towards reducing income inequality have focused on indices that measure trends in inequality over time (Gini coefficient for example) and compare countries without considering the differences between their socioeconomic structures.

However, these indices do not paint the complete picture about how countries are performing, especially when compared to one other in achieving Sustainable Development Goals and what policies and investments may be needed to support them. This research project will provide an alternative measurement of income inequality by taking into account the developing countries’ structural or predetermined conditions (mineral assets, type of institutions etc.) in assessing their progress towards reducing inequality and the impacts of climate change. 

The project focuses on the following objectives: 

1. Firstly, it will compare each country with its potential to reduce income inequalities by measuring the scope for improvement for each country at every year. This will allow a better understanding of the key factors that hinder a country’s effort and performance in reducing inequalities and of the policy and investments that are needed to tackle inequalities more efficiently.
2. Secondly, it will investigate how climate – temperature, precipitation and extreme weather events– influence the efficiency of countries in combining inputs to reduce inequality.
3. Thirdly, it will look at adaptation or intensification effects across regions, particularly in LDCs and SIDS and will identify the needed scale of investments.

Building on a panel database on 145 countries, including countries from Least Developed Countries (LDCs) and Small Island Developing States (SIDS) from 2000-2020, the project will use a stochastic frontier approach, an economic modelling technique, to estimate feasible frontiers for income inequality for each country and year.

You will find below the different research papers related to this project:

• Reducing Inequalities Despite Climate change? Rethinking Progress Towards Reducing Income Inequalities and the Impact of Climate Change in Developing Countries

While there is mounting evidence that the Covid-19 pandemic has increased socioeconomic inequality, there is still a need to understand the exact channels of impact and what role the policy response has played in different contexts. It is also necessary for governments to be clear about the efficiency of the type of policies they have implemented throughout this period, in terms of the redistributive and/or regressive effect both from an inequality and poverty perspective. Indeed, we know that the amount of additional social spending (excluding health) implemented during the pandemic reached almost 3% of GDP in Colombia and only 0,2% in Mexico. However, research has not yet demonstrated whether the redistributive policies introduced by the Mexican and Colombian governments in response to the Covid-19 crisis have had any positive effect on the distribution of economic and social resources in these two countries.

The project will seek to understand what has been the redistributive impact of social and fiscal policy in Mexico and Colombia, in the context of the policies implemented during the Covid-19 pandemic.

This research project will be conducted as follows: 

1. Using the framework of the Commitment to Equity (CEQ) methodology, an analysis aiming to differentiate what has been the progressivity or regressivity of the policies implemented during the Covid-19 pandemic will be conducted. This analysis will take into account the main beneficiary groups of these policies and will include a comparison between the budget amount and the efficiency of the policies identified in terms of inequality and poverty reduction.  
2. A desktop analysis of the decision-making will also be carried out to understand how the redistributive effects of the policies implemented were envisaged by the governments. 

The results of this project are presented in the following research paper: Promoting a More Progressive Approach - Evaluating the Impact of Social and Fiscal Policies in Mexico and Colombia amidst the Covid-19 Pandemic (2025)

This research paper analyzes the redistributive impact of some fiscal policies and social programmes (direct taxes and transfers) before and after the pandemic Crisis in Mexico and Colombia, following the CEQ methodology. 

Download the paper

Prior to the pandemic caused by COVID - 19, Colombia had shown positive results with respect to the reduction of poverty and inequality. For example, total poverty was reduced by 6.1 percentage points between 2012 and 2018 from 40.8% to 34.7% as was extreme poverty, which went from 11.7% to 8.2%, according to official statistics. Likewise, although Colombia is among the most unequal countries in the region, it reduced its Gini index by about 0.03 units from 0.539 in 2012 to 0.508 in 2017, according to data from the National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadísticas, 2021). 

However, with the public health contingency, many people lost their jobs or had their incomes reduced due to pandemic containment measures that affected both aggregate supply and aggregate demand. Naturally, according to official statistics, poverty levels increased significantly and inequality rebounded to the levels of five years ago. In fact, by 2020, the country was, according to the latest ECLAC Social Panorama, the most unequal in Latin America (Economic Commission for Latin America and the Caribbean, 2021).

In this sense, the country's tax structure plays a fundamental role to the extent that direct, indirect and in-kind transfers are transformed into support for the most vulnerable households so that they can meet their basic needs and balance these inequalities to some extent. In addition, taking into account that progressivity is one of the principles of the tax system, those with higher incomes should pay higher taxes to finance social spending. In this sense, the tax reform that began to take effect in 2018 and now the Fiscal Reform adopted at the end of 2022 made some major modifications to the corresponding statute with the objective of increasing revenues.

Find out more about the Extension in Colombia

The methodology developed by the Commitment to Equity institute (CEQ) has been used to carry out this study. The CEQ methodology allows to do a fiscal incidence analysis, that is, to analyze the redistributive impact of public policy instruments, on the tax side, as well as on the social spending side, on poverty and inequalities. In this sense, based on household surveys, it is possible to assess the redistributive capacity of taxes and transfers (whether direct or indirect) to guide public policy in this area.

The aim of the study was to identify which policies, either from the tax side or from the expense side, allow a greater impact (negative or positive) on inequalities. This then gives us, and the government, a clearer picture of the effects of the fiscal structure.

In addition, the project sought to build a tool that parameterizes the tax structure and social spending and allows making microsimulations that are useful for policy discussions. In this sense, this project sought to accompany the teams of the Ministry of Economy, providing them with a tool that allows them to carry out the necessary simulations to evaluate the impacts of different policies. The recently adopted tax reform was also analyzed through the lens of this tool.

You will find below the research paper related to this project:

• Fiscal incidence and public spending: Public policy scenarios for Colombia (also available in Spanish)