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Abstract

Municipalities across the country are in the process of implementing property rates on all property, following the Local Government: Property Rates Act (2004) that came into effect on 1 July 2005. This study investigates the economic impact of property rates on agricultural land, using a static computable general equilibrium model. The direct and indirect effects of property rates on the macro-economy, factor incomes, household welfare, prices and agricultural output are discussed. The results indicate that the impact of raising property rates depends on the use made of the additional revenue by government. There is a small negative impact on the economy and the overall welfare of households decline if government spends the additional revenue. On the other hand, if government allows a compensating reduction in sales taxes, the impact on the economy is positive and the overall welfare of households increase. However, the welfare of households in Limpopo declines irrespective of the use made of the revenue. Introducing property rates has a marginal progressive impact on the welfare of households in the event of an increase in government expenditure or a reduction in sales taxes. Property rates do not influence prices directly and, irrespective of the use made of the revenue, the impact on production and resource allocation is limited.

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