Understanding the Democratic Transition in South Africa

Abstract

Author(s): Inman, Robert P.; Rubinfeld, Daniel L. | Abstract: South Africa’s transition from apartheid to democracy stands as one of the past century’smost important political events. The transition has been successful to this point because thenew constitution adopted a form of federal governance that has been able to provideprotection for the economic elite from maximal redistributive taxation. Appropriatelystructured, federal governance creates a “hostage game” in which the majority centralgovernment controls the tax rate but elite run province(s) control the provision of importantredistributive services to a significant fraction of lower income households. At least totoday, the political economy of South Africa has found a stable equilibrium with less thanmaximal redistributive taxation. Moreover, the move to a democratic federalist system hasimproved the economic welfare of both the white minority and the black majority. Whetherthe federal structure can continue to check maximal taxation depends crucially upon the ratenof time preference of the majority and their demands for redistributive public services. Anew, impatient and more radical majority (ANC) party threatens the current equilibrium.