The System Of Finance For Local Government Essay

The System Of Finance For Local Government - Essay Example The model was primarily concerned with finding a market-like mechanism that would achieve an efficient allocation of resources to the public sector. The main finding included the fact that inter-jurisdictional competition is a vital element of the mechanism. The key players in Tiebout’s model are individual citizens and governments. business firms are not an explicit part of the model (Brueckner 2004, p 138). It was meant to be applied to local governments and to a lesser degree, to state governments. The model assumes citizens have full knowledge of government revenue and expenditure packages, that there are a large number of communities among which individuals can choose to live, and that people will opt for the community that best satisfies their preferences. Moreover, the model assumes that government services exhibit no spillover effects (Billings 2008, p 45). Tiebout’s model made three additional assumptions; one, that jobs impose no locational constraint on indiv iduals; two, that a community’s optimal size, meaning the size for which the average cost of producing a particular packages of public services is minimized, can be determined; and three, that each community seeks to attain its optimal size (Feiock 2004, p. 76). The model envisions citizens sorting themselves out among available communities so that demands for government services within any particular community would become homogenous. In theory, Tiebout concluded that to the extent these rather restrictive assumptions are met, good and services provided by the local public sector will exhibit both allocative efficiency (the right amounts of the various good and services are produced ) and productive efficiency (they are produced at least cost) (Rivkin 2001, p. 206). In Tiebout’s model, community taxes would be benefit taxes, or proportional to the benefits citizens receive form public services, rather than taxes based on the ability to pay.