AN AFRICAN GROWTH TRAP: PRODUCTION TECHNOLOGY AND THE TIME-CONSISTENCY OF AGRICULTURAL TAXATION, R&D AND INVESTMENT

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, primarily because production technology requires relatively large sunk costs. For pro-growth policies to become sustainable, commitment mechanisms or new production techniques would be needed.


Issue Date:
2000
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/11839
Total Pages:
46
Series Statement:
Harvard University Center for International Development Working Paper 48, Revised

Record appears in:



 Record created 2017-04-01, last modified 2017-08-23

Fulltext:
Download fulltext
PDF

Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)