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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 pro-growth policies to become sustainable, commitment mechanisms or new production techniques would be needed.

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Bibliographic Info

Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 50.

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Date of creation: Jun 2000
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Handle: RePEc:wop:cidhav:50

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Web page: http://www.cid.harvard.edu/cidwp/
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Keywords: time consistency; agricultural policy; economic growth;

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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?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  2. Sachs, J-D & Warner, A-M, 1996. "Sources of Slow Growth in African Economies," Papers 545, Harvard - Institute for International Development.
  3. Margaret McMillan, 2001. "Why Kill The Golden Goose? A Political-Economy Model Of Export Taxation," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 170-184, February.
  4. Masters, William A. & Bedingar, Touba & Oehmke, James F., 1998. "The impact of agricultural research in Africa: aggregate and case study evidence," Agricultural Economics, Blackwell, vol. 19(1-2), pages 81-86, September.
  5. Besley, Timothy, 1997. "Monopsony and Time-Consistency: Sustainable Pricing Policies for Perennial Crops," Review of Development Economics, Wiley Blackwell, vol. 1(1), pages 57-70, February.
  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), vol. 7(2), pages 208-36, July.
  7. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  8. Lilyan E. Fulginiti & Richard K. Perrin, 2005. "LDC Agriculture: Non-parametric Malmquist productivity indexes," Development and Comp Systems 0502025, EconWPA.
  9. 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.
  10. 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.
  11. 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), vol. 7(1), pages 120-42, March.
  12. 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, vol. 86(5), pages 1216-38, December.
  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. 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), vol. 5(3), pages 99-191, October.
  15. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  16. 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.
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