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

Margaret Mcmillan () and William A. Masters ()

CID Working Papers from Center for International Development at Harvard University

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.

Keywords: time consistency; agricultural policy; economic growth (search for similar items in EconPapers)
JEL-codes: F43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2000-06
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Working Paper: Africa's Growth Trap: A Political-Economy Model of Taxation, R&D and Investment (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:wop:cidhav:50

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