Do Rent-Seeking and Interregional Transfers Contribute to Urban Primacy in Sub-Saharan Africa?

Abstract

We develop an economic geography model in which mobile skilled workers choose between working in the production sector or becoming part of an unproductive political elite. The elite sets tax rates on skilled and unskilled workers to maximize its own welfare by extracting rents, thereby influencing the spatial allocation of production and changing the available range of consumption goods. We show that such behavior increases the likelihood of agglomeration and of urban primacy. In equilibrium, the elite may tax the unskilled workers but will never tax the skilled workers, and there are rural-urban transfers towards the agglomeration. The size of the elite and the magnitude of the tax burden that falls on the unskilled is shown to decrease with product differentiation and, via the tax rates, with the expenditure share for manufacturing goods.