American Law and Economics Review Advance Access published January 11, 2013
Understanding the Democratic Transition in South Africa Downloaded from Robert P. Inman, University of Pennsylvania, and Daniel L. Rubinfeld, University of California, Berkeley Send correspondence to: Daniel L. Rubinfeld, Law and Professor of Economics Emeritus, University of California, Berkeley, CA 94720, USA. Tel: 510-642-1959; Fax: 510-642-
3767; E-mail: [email protected]. http://aler.oxfordjournals.org/
South Africa’s transition from apartheid to democracy has been successful because its federal governance has provided protection for the economic elite from maximal redis- tributive taxation. Federal governance creates a “hostage game” in which the majority central government controls tax rates, while elite-run provinces control redistributive services. South Africa has found an equilibrium that has improved the welfare of the white minority and the black majority. However, the success of the federal structure at University of California, Berkeley on January 14, 2013 depends on the patience of the majority and their demands for redistributive public ser- vices. An impatient and more radical majority party threatens the current equilibrium. (JEL D74, H7, H77)
1. Introduction
South Africa’s transition from apartheid to a truly multi-racial democ- racy stands as one of the significant political events of the last century. The transition was peacefully negotiated, the democratic bargain is still holding, and despite still high rates of unemployment, the average South African res- ident, both black and white, is economically better off today than under the
The authors served as advisors to the Financial and Fiscal Commission and to the Departments of Finance, of Education, and of Welfare on matters of fiscal policy for the period, 1994–2000. This paper grew out of Rubinfeld’s ALEA presidential address. The analysis here has also benefitted from presentations to our colleagues at Berkeley, Cornell, Michigan, NYU, Penn, Stanford, and Wesleyan. Particular thanks are due to Carolyn Ballay, Grant Long, and Jon Stott for extraordinary research assistance. American Law and Economics Review doi:10.1093/aler/ahs023