Final answer:
The reduction of South Africa's corporate tax rate in 2002 was most likely aimed at attracting foreign investment, thus boosting economic growth.
By doing so, the country anticipated increased capital that could be invested in improvement areas such as education and the development of skilled labor.
Step-by-step explanation:
The question asks about the effect of reducing the corporate tax rate from 28% to 27% in South Africa in 2002. The reduction in corporate tax rates generally aims to make a country more attractive to both domestic and foreign investment, which in turn can drive economic growth.
By lowering taxes, businesses have more capital to invest in expansion and hiring, which can contribute to a decrease in unemployment and an increase in productivity.
Additionally, by fostering an environment that is conducive to investment, South Africa could increase fiscal expenditure and fund important areas such as education, vocational training, and apprenticeships.
This strategy may ultimately contribute to enhancing the skills of the workforce, which is attractive to technology leaders and various other sectors looking for skilled labor.
In terms of fiscal policy, using taxation to stabilize an economy is common practice. While increasing taxes can slow down an overheating economy, decreasing taxes is often used to stimulate economic growth by increasing the amount available for consumer spending and business investment.
However, it's also important to recognize the potential risks involved with major changes in foreign capital flows, which can affect the stability of the national currency.