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Africa's growth trap: a political-economy model of taxation, R&D and investment

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  • Margaret S. McMillan
  • William A. Masters

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 progrowth policies to become sustainable, commitment mechanisms or new production techniques would be needed.

Suggested Citation

  • Margaret S. McMillan & William A. Masters, 2000. "Africa's growth trap: a political-economy model of taxation, R&D and investment," CSAE Working Paper Series 2000-14, Centre for the Study of African Economies, University of Oxford.
    • Handle: RePEc:csa:wpaper:2000-14
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    References listed on IDEAS

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    More about this item

    Keywords

    time consistency; agricultural policy; tax regimes and growth;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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