Berkeley Program in Law and Economics
Understanding the Democratic Transition in South Africa
- Author(s): Inman, Robert P.
- Rubinfeld, Daniel L.
- et al.
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.