Study On TheTheory Model And Empirical Test Of The Supply Of Local PubicGoods And Services Based On Tiebout Model

Theory of fiscal decentralization is regarded as one of the forefront issues in finance. With a trend of fiscal decentralization set off in many transforming and developing countries, it gains an unprecedented attention in the theoretical circles. Generally the government system in a country is divided into several levels, and it is the important goal of the Central Government to achieve coordinated development of regional economies through the distribution of power. Fiscal decentralization gives local governments, which has flexibility on the size and structure of budget expenditures, a certain degree of tax powers and expenditure responsibilities. The local government can choose the type of policy and actively participate in social management so as to provide more and better services. The theory is not only attached great importance in developed countries ,but also in many developing countries where fiscal decentralization is viewed as important means to break the shackles of planning of Central Government and step onto the road towards sustained growth of economy.The theory of fiscal decentralization is based on Tiebout model. Tiebout firstly raises the famous thesis, "vote with the feet," and it has made a significant contribution to economic disciplines, such as public economics, urban economics, etc. and even the development of political science. In recent 50 years, especially since 1970, people continue to explore and perfect its original results, and expand its research to a wider areas outside the public economics.Based on the Tiebout model, this paper draws a more universal conclusion through loosening assumed conditions of the original model. The author studied the applicability of the Tiebout-Oates system in 28 districts and counties in the Chongqing region in China .The main research results and conclusions are as follows:Firstly, three assumptions in the Tiebout model - unlimited quantity of community; all residents living on dividends, that is homogeneous communities; constant scale and returns of the production of public goods or services, are changed respectively to limited number of communities, communities with heterogeneity, decreasing of returns to scale and increasing of returns to scale. And then four improved models are set up. The difference between the improved one and the original one is:â‘ When the number of community is limited, the relocation of the residents in the original one is not efficient.â‘¡When the communities are heterogeneous, the conditions of ultimate equilibrium are: the minimum quantity of living space purchased should be mapped out so high that the lowest-income people in rich communities are indifferent to the issue whether remaining in their original communities or moving to low-income communities in the neighborhood. While in Tiebout communities, the income of all residents are homogeneous, residents migration is only affected by whether the combination of taxes and public services is optimal.When it is thought to be optimal, it is balanced. As a result, there is no such kind of migration caused by specification of housing area.Decisions on residential location are based on the total price of the house. Therefore, taxation for housing and public services will lead to a net loss of tax revenue.The households in the community are spending the same amount of public service, but their contributions to taxes are different, so there exists redistribution in heterogeneous communities.While in Tiebout communities, housing purchasing are based on the net price, so the loss could be eradicated, and there is no redistribution like that in the heterogeneous communities.â‘¢When scale increasing occurs, negative tax will be capitalized, but public service may not be capitalized positively;â‘£When scale decreasing occures, public services are capitalized, but negative tax will not necessarily be capitalized.Secondly, the theoretical model is constructed to study the relative efficiency of providing public products and services by the central and local governments. And it shows that:â‘ When the externalities of public goods are small and (or) jurisdiction areas have sufficient heterogeneity, provision of public goods by the local government is more efficient.â‘¡When the externalities are large and positive, provision by the Central Government will be more effective. In addition, the model looks into the conditions of Pareto Optimality by the central and local governments to provide public goods. The results come as following,â‘ When the public goods have sufficient homogeneity in the area (in this case the homogeneity means that the costs and benefits of public goods are close ), and when public goods have a strong positive externalities, central government is Pareto-dominated;â‘¡When only the cost of public goods is fully close, while the benefits not, even though the externality of public goods is zero, some areas will receive more revenue from the local governments strictly, and the central government will not achieve Pareto optimality.Thirdly, regression analysis is used to test Tiebout - Oates system based on the data of 28 districts and counties in Chongqing region. It is found that: Although the urban structure in Chongqing city is quite different from that in the United States, the conclusions of Tiebout are still applicable to Chongqing, which confirms the theory of Tiebout. The study shows that raising of property tax in Chongqing will lower housing value, which leads to a negative capitalization of tax; improving the quality of local public services will drive up housing value, which leads to a negative capitalization of public services.