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Africa's Growth Trap: A Political-Economy Model of Taxation, R&D and Investment

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Author Info
Margaret S. McMillan
William A. Masters

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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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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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Related research
Keywords: time consistency; agricultural policy; economic growth;

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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

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  2. Fulginiti, Lilyan E. & Perrin, Richard K., 1997. "LDC agriculture: Nonparametric Malmquist productivity indexes," Journal of Development Economics, Elsevier, vol. 53(2), pages 373-390, August. [Downloadable!] (restricted)
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  3. 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.
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  4. Deaton, Angus & Miller, Ron, 1996. "International Commodity Prices, Macroeconomic Performance and Politics in Sub-Saharan Africa," Journal of African Economies, Oxford University Press, vol. 5(3), pages 99-191, October.
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  5. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Oxford University Press, vol. 6(3), pages 335-76, October.
  6. 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.
  7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Hertel, Thomas W & Masters, William A & Elbehri, Aziz, 1998. "The Uruguay Round and Africa: A Global, General Equilibrium Analysis," Journal of African Economies, Oxford University Press, vol. 7(2), pages 208-36, July.
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  10. 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. [Downloadable!] (restricted)
  11. Besley, Timothy, 1997. "Monopsony and Time-Consistency: Sustainable Pricing Policies for Perennial Crops," Review of Development Economics, Blackwell Publishing, vol. 1(1), pages 57-70, February. [Downloadable!] (restricted)
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  12. Easterly, William & Levine, Ross, 1998. "Troubles with the Neighbours: Africa's Problem, Africa's Opportunity," Journal of African Economies, Oxford University Press, vol. 7(1), pages 120-42, March.
  13. 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. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
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