PROVIDE Project Technical Paper 2005:1
component of mortgage repayments, investments in pension schemes and shares, funds
deposited into savings accounts and ‘stokvels’, and all other forms of investment. In the
SARB 2000 data it appears to be a residual item that balances current expenditure and current
income, rather than an observed ‘expenditure’ by households.
February 2005
2.4.3. Income and expenditure patterns by deciles
This section compares income and expenditure patterns between income or expenditure
deciles. The objective is to see whether income and expenditure patterns behave according to
expectations. As far as income is concerned, economic literature recognises the fact that
sources of income usually differ between households in different income deciles. Typically
low-income households rely more on financial support from government transfers, while
middle- to high-income households earn a greater share of income from labour and from the
ownership of capital.
Expenditure patterns across expenditure deciles are also considered. The food budget
share provides a useful check to test the validity of Engel’s Law, which states that low-
income households spend a larger proportion of their income on food. Income tax payments
were previously shown to be problematic due to the apparent underreporting in IES 2000,
thus also calling for further explorations at the expenditure decile level. Finally, household
savings are often strongly determined by household income. An analysis across expenditure
deciles provides a useful check on the validity of the results.
The IES 2000 sources of income are grouped into three income groups for simplicity
reasons. These are (1) income from corporations and GOS, (2) income from labour and the
sale of home produce, and (3) income from government and household transfers. Figure 4
shows that income from labour and the sale of home produce and livestock, although by far
the most important source of income at a national level, only contributes between 30% and
50% of total income in the low-income deciles (one to five). These income groups depend
much more on transfer income from government and other households. Income from
corporations and GOS are not a particularly important source of income for these low-income
households.
As we move to the higher income groups, labour income becomes a very important source
of income. Transfer income drops rapidly in relative terms (although not necessarily in
absolute terms), while income from corporations and GOS increases steadily and causes
labour income’s share to drop slightly in the tenth decile. From the evidence presented it can
be said that income patterns appear to be consistent and realistic across income deciles.
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