Understanding the Democratic Transition in South Africa

South Africa's transition from apartheid to democracy has been successful because its federal governance has provided protection for the economic elite from maximal redistributive 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 depends on the patience of the majority and their demands for redistributive public services. An impatient and more radical majority party threatens the current equilibrium. (JEL: D74, H7, H77)