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

  • Margaret S. McMillan
  • William A. Masters

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
Date of revision:
Handle: RePEc:wop:cidhav:50
Contact details of provider: Postal: Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.
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  1. repec:tpr:qjecon:v:106:y:1991:i:2:p:407-43 is not listed on IDEAS
  2. 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.
  3. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
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  9. 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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  12. 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.
  13. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
  14. 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.
  15. Sachs, J-D & Warner, A-M, 1996. "Sources of Slow Growth in African Economies," Papers 545, Harvard - Institute for International Development.
  16. 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.
  17. Masters, William A. & Bedingar, Touba & Oehmke, James F., 1998. "The impact of agricultural research in Africa: aggregate and case study evidence," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 19(1-2), September.
  18. 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.
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