Africa's growth trap: a political-economy model of taxation, R&D and investment
AbstractWhy 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? We 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 initial cost structure. We find that in many (but not all) African countries, low tax/high investment regimes would be time-inconsistent. For progrowth policies to become sustainable, commitment mechanisms or new production techniques would be needed.
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Bibliographic InfoPaper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2000-14.
Date of creation: 2000
Date of revision:
time consistency; agricultural policy; tax regimes and growth.;
Other versions of this item:
- Margaret S. McMillan & William A. Masters, 2000. "Africa's Growth Trap: A Political-Economy Model of Taxation, R&D and Investment," CID Working Papers 50, Center for International Development at Harvard University.
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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