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Africa's growth trap: a political-economy model of 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? 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 Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2000-14.

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Date of creation: 2000
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Handle: RePEc:csa:wpaper:2000-14

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Keywords: time consistency; agricultural policy; tax regimes and growth.;

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  1. Besley, Timothy, 1997. "Monopsony and Time-Consistency: Sustainable Pricing Policies for Perennial Crops," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 57-70, February.
  2. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 201, University of Rochester - Center for Economic Research (RCER).
  3. Sachs, J-D & Warner, A-M, 1996. "Sources of Slow Growth in African Economies," Papers, Harvard - Institute for International Development 545, Harvard - Institute for International Development.
  4. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers, Harvard - Institute for International Development 536, Harvard - Institute for International Development.
  5. Deaton, Angus & Miller, Ron, 1996. "International Commodity Prices, Macroeconomic Performance and Politics in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 5(3), pages 99-191, October.
  6. 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), Centre for the Study of African Economies (CSAE), vol. 7(2), pages 208-36, July.
  7. 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, MIT Press, vol. 114(1), pages 83-116, February.
  8. 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., John Wiley & Sons, Ltd., vol. 9(4), pages 529-538.
  9. 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, International Association of Agricultural Economists, vol. 19(1-2), September.
  10. Easterly, William & Levine, Ross, 1998. "Troubles with the Neighbours: Africa's Problem, Africa's Opportunity," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 7(1), pages 120-42, March.
  11. Fulginiti, Lilyan E. & Perrin, Richard K., 1997. "LDC agriculture: Nonparametric Malmquist productivity indexes," Journal of Development Economics, Elsevier, Elsevier, vol. 53(2), pages 373-390, August.
  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, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 207-296.
  13. Margaret McMillan, 2001. "Why Kill The Golden Goose? A Political-Economy Model Of Export Taxation," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 83(1), pages 170-184, February.
  14. Richard J. Gilbert & David M. Newbery, 1994. "The Dynamic Efficiency of Regulatory Constitutions," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 25(4), pages 538-554, Winter.
  15. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  16. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1216-38, December.
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