Abstract
Continuous fiscal imbalances fuel the future increase of tax burdens with significant damping effects on household consumption. This paper investigates how the distribution of income tax and expenditure tax varies across population groups in South Africa using provincial level data spanning the period from 1995 to 2017. Empirical findings suggest that besides economic conditions, demographic changes exert a robust effect on tax composition and such association is not only subject to heterogeneity but also to spatial dependence. Results from spatial panel error models indicate that economic growth, trade openness and population ageing fuel spending taxes as they exhibit a negative impact on the income to expenditure tax ratio while output gap and population development help raise income taxes. This confirms that South African elderly population endures the tax load as population ages due to the excess demand for goods and services that spurs expenditure rather than income taxes. Therefore, a tax rebate policy on elderly purchase could be considered to minimise old age tax burden, which in turn, contributes to fiscal equity.