Study On Public Goods Supply In China

Being consistent with socialist market economy, the economic role of China's government should be transformed to effective supply of public goods for residents and firms. Based on a systematic study of the western public goods theories and with the help of the analytic skills of modern economics such as game theory analysis, this thesis makes a profound analysis of real situation of public goods supply in China, and focuses on reforms of supply system of public goods in urban areas, rural areas, and western China.Public goods are commodities for which the cost of extending the service to an additional person is zero and which it is impossible to exclude individuals from enjoying. The Non-excludability and Non-rivalry are basic characteristics of public goods. But private provision of public goods encounters a "free-rider" problem that can lead to under-provision and under-financing of such socially desirable goods. Because private provision of public goods is generally insufficient, government must step in to encourage the production of public goods. The fundamental condition of public goods equilibrium is that sum of individual marginal rate of substitution between the private good and the public good must equal the marginal production cost of public good.Public-choice theory examines the way different voting mechanism can function and shows that there are no ideal mechanisms to sum up individual preferences into social choice. Public-choice theory analyzes how governments actually behave. Just as the invisible hand can break down, so are there government failures in provision of public goods. A careful study of government failures is crucial for understanding the limitations of government and ensuring that government programs are notexcessively intrusive or wasteful.According to theory of fiscal federalism, localities are responsible for local public goods, whose benefits are largely confined to local residents. Functions of federal government are improving the distribution of income, stabilizing the economy through macroeconomic policies, and providing national public goods. This thesis in chapter three discusses several theories about fiscal decentralization such as Oates's theorem of fiscal decentralization, Buchanan's theory of clubs, Tiebout model, and so forth.The reformation of China's fiscal system should aim at public finance system, which is consistent with market economy. Fundamental characteristics of public finance system are summarized in chapter four as follows:public,equal,correcting market failures, abiding by the laws .The economic role of government may be summarized as providing general public goods. Because the present supply system of public goods brings about some social and economic consequences, which are discussed in this thesis, it is imperative and very important to promote institutional creation of supply of public goods in China such as system of work unit supplying public goods, allocation mechanism of urban education resources, public services of government, supply system of rural public goods, protecting ecological resources and construction of infrastructure in western China, and so on.It is not the thesis's purpose to discuss every public good in detail. This thesis focuses on reforms of supply system of public goods in urban areas, rural areas, and western China. The author pays his more attention to supply of rural public goods, which is drawing many people attention. This thesis compares nowadays supply system of rural public goods with that before the Reform. Just as there is dual tax system in urban and rural areas, so is there dual supply system of public goods, which is a fundamental factor that leads to heavy burden of expense and tax on peasants.