Theoretical Analysis Of The System Of Local Government Bonds Reasons

The function of traditional municipal bond is merely limited to as sources of revenues. From the viewpoint of the author, as far as the principal-agent problem of government is concerned, the local government bond is endowed with mechanism of voting by foot, in order to guarantee the efficiency of the mechanism of voting by hand. The advantages of local government bond market are not only having the minimum information cost, but also the minimum execution fee. As is the key role, all the local governments are forced into competitive security market, and the bond prices are regarded as the evaluation scheme as well as incentive scheme. Thereafter, the central government performs as the most predominant market maker. By comparison, from "Tiebout Model" the decentralized federalism has not solved the information problem aside from the move-cost problem for the "Voting by Foot"mechanism.