Evidence for a YETI? A Cautionary Tale from South Africa's Youth Employment Tax Incentive

Abstract

In 2014 the South African government implemented a youth employment tax incentive (YETI) scheme to address the high rate of youth unemployment. Its adoption has been hailed as a success story for evidence-based policy. This article critically assesses that claim, focusing on the randomized trial of a wage-subsidy voucher that was used to justify the adoption of the policy and econometric analyses of the incentive's efficacy that were used to justify its renewal. That evidence is shown to be materially flawed. The design of the randomized trial meant that its relevance to the policy question was limited and critical issues pertaining to the estimated effect of the intervention, external validity and scale-up were not addressed. The process was similarly flawed, with evidence only made public after critical legislative decisions had been taken. Analysis of that process shows how supposedly rigorous evidence was used to obscure the limitations and risks of the proposal in service of pre-existing positions, vested interests and political imperatives. This implies a high opportunity cost for the tax expenditures incurred through the incentive. The South African YETI thereby serves as a cautionary tale on randomized trials and the political economy of evidence-based policy, particularly in developing countries.