REIMAGINING STATE CAPACITY IN THE SHADOW OF BUREAUCRATIC CORRUPTION AND FACTOR PRICE MANIPULATION

Abstract

The relationship between tax revenue and economic growth is a complex one, with no clear consensus among economists. Some studies have found that a high tax burden can stifle growth, while others have found that it can actually promote growth by providing the government with the resources it needs to invest in infrastructure and other productive activities.

This paper argues that the key to understanding the relationship between tax revenue and economic growth is to consider the political regime of the country in question. In countries with extractive political regimes, where the government is primarily concerned with enriching itself at the expense of the people, high taxes are likely to be counterproductive. This is because extractive regimes are often characterized by corruption and rent-seeking, which can discourage investment and economic activity.

In contrast, countries with inclusive political regimes, where the government is more accountable to the people, are more likely to benefit from high tax revenues. This is because inclusive regimes are more likely to use tax revenue to invest in productive activities that promote growth.