On The Government To Supply Its Efficiency

Based on the empirical observation on government supply preference (size , scope and structure),this paper explores its determining mechanism and its efficiency characteristic in the dynamic economic transition process, in the short-term political process, and in the administration and fiscal institutions adjustment process. The importance of co-evolution of private dominated market economy and public finance is recognized.The scope of government supply is linked with the evolving functions of market mechanism. The justice of the scope of government supply originates from specific economic development patterns (planned economy vs. market economy), economic development stages (lower stages vs. high stages),and economic development paths(spontaneous evolution vs. strategic dcsign).China's gradual economic transition is a controlled dynamic optimization process .New forces to promote further reforms have to be found to offset the alienation which originated from strategic choices in the early period of economic transition .Otherwise the whole strategic dynamic optimization process will be interrupted , and society cannot reap the dynamic efficiency of reform. The changing government supply preference was a kind of exogenous force to promote economic transition , while it is endogenized by the transition process itself now.Endogenous or exogenous interest groups and social groups emerged with the transition process, meanwhile public resources were fragmentized among government agencies and out of control of fiscal administration. Based on such a background, we use a simple model to demonstrate how the size and structure of government supply are determined by the political equilibrium but not economic market equilibrium. Fragmented public sectors still control excessive marketable resources, which are far from the provision of public goods. So the efficiency difference between political and economic equilibriums can be shortened by shrinking some scopes of government supply. At the same time, for non-marketable ones, a healthy socialism democracy which is a balance between absolute authority and absolute democracy, should be strengthened, and political allocation efficiency can be improved by changing the location of political equilibrium itself.Government is engaged in public service in private dominated market economy,while it is engaged in construction in local government dominated market economy. In the latter case, the flattened reform of administration and fiscal institution may not improve social resources allocation, but probably will result in more fierce negative-sum competition among local governments due to improper vertical political promotion incentives and horizontal control rights maximizing impulse of local officals . The co-evolution of government dominance and economic construction style public finance will be consolidated. In the former case, flattened institution usually is the endogenous demands of economic development, which is good for spontaneous coordination in local societies and reaping scale economy. The co-evolution of private dominated market economy and social service style public finance will be consolidated. So economic base is fundamental, meanwhile, normative institutions to restrict government and its officials are also of vital importance. More flexible administration and fiscal institutions may be a better choice for developing China with great difference among regions.Then, we explore the possible mechanisms that government supply affects economic growth, and the possible feedback causality relationship, where ECM and VAR model are applied. We reach the conclusion that government capital supply and long run economic growth exist bilateral causality relationships, public service supply is the Granger causality of longrun economic growth, while the opposite relationship does not exist. Obviously, this is just the reflection of the problematic government supply institutions. Finally, policy advices are suggested.