An African Growth Trap: Production Technology and the Time-Consistency of Agricultural Taxation, R&D and Investment
26 Pages Posted: 4 Dec 2003
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An African Growth Trap: Production Technology and the Time-Consistency of Agricultural Taxation, R&D and Investment
An African Growth Trap: Production Technology and the Time-Consistency of Agricultural Taxation, R&D and Investment
Date Written: July 3, 2002
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, primarily because production technology requires relatively large sunk costs. For pro-growth policies to become sustainable, new political commitment mechanisms or new production techniques would be needed.
Keywords: endogenous policy, political economy, agricultural research, economic growth
JEL Classification: F43, O41
Suggested Citation: Suggested Citation
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