Why Kill The Golden Goose? A Political-Economy Model Of Export Taxation

Margaret McMillan

The Review of Economics and Statistics, 2001, vol. 83, issue 1, 170-184

Abstract: Why do governments tax exports at rates that are ultimately self-defeating? An answer may lie in the time-inconsistent nature of a low-tax policy. Using a dynamic model of export taxation, I show that the sustainability of a low-tax policy depends on three variables: the ratio of sunk costs to total costs, how heavily future export revenue is discounted, and expected future export earnings. Using data on taxation, leadership duration, and profitability, I test this theory for 32 countries and six crops from Sub-Saharan Africa. These three variables are statistically and economically relevant predictors of tax regime. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 2001
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