The dependency index.

Abstract

ABSTRACTBSTRACTBSTRACT BSTRACT BSTRACT The economic exclusion of the majority of households in South Africa is highly systemic, and remains a fracture in the socio political economy of the country (Lichbach 1989, Thorbecke and Charumilind 2002). In order to promote human capital development and economic inclusion the state provides cash transfer social wages, derived from taxes, to citizens most in need of support (Oosthuizen 2007). This study defines a new index (the ‗dependency index‘) that describes the economic relationship between households and the state, depending on the income decile (category) of the household. 21,144 households from the 2005/2006 Income and Expenditure survey, conducted by Statistics South Africa, were analysed in context of this new index. Results find that buying power of households per income decile is augmented significantly by the constitution of social grants as a function of tax adjusted earned income. Thus the index defines, per household, the consumption value of each rand earned through work and the net fiscal relationship with the state, on a single Cartesian scale. The study posed three hypotheses: a) the dependency index is significantly different per income decile, b) the index forms an inverse curvilinear trend across deciles, and c) the dependency index has a negative linear trend within income decile 10. ANOVA analysis and curve fitting provides support for all three hypotheses. The dependency index may be useful for policy formulation and evaluation, international benchmarking as well as household planning.