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An African Growth Trap: Production Technology and the Time-Consistency of Agricultural Taxation, R&D and Investment

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  • Margaret S. McMillan
  • William A. Masters

Abstract

Why do so many African governments consistently impose high tax rates and make little investment in productive public goods, when alternative policies could yield greater tax revenues and higher national income? The authors posit and test an intertemporal political economy model in which the government sets tax and R&D levels while investors respond with production. Equilibrium policy and growth rates depend on the initial cost structure. It is found that in many (but not all) African countries, low tax/high investment regimes would be time-inconsistent, primarily because production technology requires relatively large sunk costs. For pro-growth policies to become sustainable, new political commitment mechanisms or new production techniques would be needed. Copyright Blackwell Publishing Ltd 2003.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 7 (2003)
Issue (Month): 2 (05)
Pages: 179-191

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Handle: RePEc:bla:rdevec:v:7:y:2003:i:2:p:179-191

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
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  5. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-76, October.
  6. Masters, William A. & Bedingar, Touba & Oehmke, James F., 1998. "The impact of agricultural research in Africa: aggregate and case study evidence," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 19(1-2), September.
  7. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  8. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  9. Lilyan E. Fulginiti & Richard K. Perrin, 2005. "LDC Agriculture: Non-parametric Malmquist productivity indexes," Development and Comp Systems 0502025, EconWPA.
  10. Angela Lusigi & Colin Thirtle, 1997. "Total Factor Productivity And The Effects Of R&D In African Agriculture," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(4), pages 529-538.
  11. Besley, T., 1992. "Monopsony and Time-Consistency : Sustainable Pricing Policies for Perennial Grops," Papers 159, Princeton, Woodrow Wilson School - Development Studies.
  12. David E. Bloom & Jeffrey D. Sachs, 1998. "Geography, Demography, and Economic Growth in Africa," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 207-296.
  13. Richard J. Gilbert & David M. Newbery, 1994. "The Dynamic Efficiency of Regulatory Constitutions," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 538-554, Winter.
  14. Hertel, Thomas W & Masters, William A & Elbehri, Aziz, 1998. "The Uruguay Round and Africa: A Global, General Equilibrium Analysis," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 7(2), pages 208-36, July.
  15. Alston, Julian M. & Wyatt, T. J. & Pardey, Philip G. & Marra, Michele C. & Chan-Kang, Connie, 2000. "A meta-analysis of rates of return to agricultural R & D: ex pede Herculem?," Research reports 113, International Food Policy Research Institute (IFPRI).
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Citations

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Cited by:
  1. Bamou, Ernest & Masters, William A., 2007. "Distortions to Agricultural Incentives in Cameroon," Agricultural Distortions Working Paper 48518, World Bank.
  2. Chih Ming Tan, 2010. "No one true path: uncovering the interplay between geography, institutions, and fractionalization in economic development," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1100-1127, November/.
  3. Masters, William A. & Garcia, Andres F., 2009. "Agricultural Price Distortion and Stabilization: Stylized facts and Hypothesis Tests," Agricultural Distortions Working Paper 50301, World Bank.
  4. McMillan, Margaret & Masters, William A. & Kazianga, Harounan, 2012. "Rural demography, public services, and land rights in Africa: A village-level analysis in Burkina Faso," IFPRI discussion papers 1164, International Food Policy Research Institute (IFPRI).

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