Working Paper: NBER ID: w17799
Authors: Robert P. Inman; Daniel L. Rubinfeld
Abstract: South Africa's transition from apartheid to democracy stands as one of the past century's most important political events. The transition has been successful to this point because the new constitution adopted a form of federal governance that has been able to provide protection for the economic elite from maximal redistributive taxation. Appropriately structured, federal governance creates a "hostage game" in which the majority central government controls the tax rate but elite run province(s) control the provision of important redistributive services to a significant fraction of lower income households. At least to today, the political economy of South Africa has found a stable equilibrium with less than maximal redistributive taxation. Moreover, the move to a democratic federalist system has improved the economic welfare of both the white minority and the black majority. Whether the federal structure can continue to check maximal taxation depends crucially upon the rate of time preference of the majority and their demands for redistributive public services. A new, impatient and more radical majority (ANC) party threatens the current equilibrium.
Keywords: democratic transition; federal governance; South Africa; economic welfare; redistributive taxation
JEL Codes: D74; H7; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal governance (H77) | peaceful transition to democracy (P39) |
| control over provincial resources (H77) | mitigate risks of redistributive taxation (H23) |
| federal structure (H77) | balance interests of economic elite and majority (D72) |
| federal governance (H77) | economic improvements for both white minority and black majority (O17) |
| majority's rate of time preference (D15) | stability of current equilibrium (C62) |
| demand for redistributive services (H49) | stability of current equilibrium (C62) |