The World’s Newest State

The 9th of July is set to represent the founding of the newest member of the international club, the Republic of South Sudan, after years of conflict in the region. Although there have been continuing disputes since the independence referendum in February this year, the think tank Chatham House has argued that secession presents a number of opportunities for peace and development.

There’s nothing controversial in the article, but I think it is worth pointing out a number of the other benefits to secession from states, generally. Competition between states will over time lead to lower tax rates as competition for investment increases, increasing human development levels. Of course development is more complicated an issue that simply lowering tax rates, but investment from abroad has proven to be a key driver in raising standards of living. Secession also reduces the centralisation of decision making, given that the new state will control a smaller area in total than the state from which it gains independence. Planning is of course best done at the individual level, but where it is done by others, local decision makers will produce better results given that they have greater knowledge of the area which they control.

Incidentally, “The Republic of South Sudan” seems to be something of an uninteresting name compared to some of the others proposed and considered, particularly “Kush Republic”.

Later: Voice of America has it that the North Sudanese have reinforced their military units deployed in an already-contested region bordering the South.

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2 responses to “The World’s Newest State”

  1. Edward Nickell says :

    Though I have no real position for or against secession, tax competition really isn’t a pro I’d give much weight to in Africa (though a competitive corporation tax would be welcome in Northern Ireland!)

    The countries in Africa that have low tax rates are just as often as not those which have huge amounts of corruption, making excessive bribery necessary for any business. This probably wastes more investment than some of the higher tax rates do. I doubt there would be any correlation between anything like HDI and tax rates. Not that I think many sub-saharan states manage to successfully collect tax and spend it on infrastructure etc much better than investors do.

    • Adam Baxter says :

      Edward,

      I don’t disagree with anything you’ve said there. At least, I don’t question question that simply lowering levels of taxation will lead to improved HDI metrics in most African states. Africa has a number of impediments to its development, one of the most important of which is the lack of secure and clear property rights. I think that where these exist, lower relative levels of taxation will indeed result in greater FDI flows. Hence in general competitive tax systems will lead to higher standards of living because in general states tend to generally respect property rights (taxation notwithstanding). Obviously, when it comes to development in many African states, the former (property rights) has greater importance than the latter (competitive relative tax rates).

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