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 pro- growth policies to become sustainable, commitment mechanisms or new production techniques would be needed.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
2000-14.
Length: 23 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:oxesaf:2000-14
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Find related papers by JEL classification: 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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