Zviad Barkaia Public Choice Paper

7/23/2019 Zviad Barkaia Public Choice Paper

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TROY UNIVERSITY SORRELL COLLEGE OF BUSINESS

Class - Public Choice, ECO 6660-TGAA

Instructor – Dr. George R. Crowley

Student –Zviad ar!aia

Email- "bar!aia#$roy.edu

!ure T"eor# o$ Local E%&enditures – '#t"s and Realities

(stract

)

*+,

Introduction

In this paper, I have argued that local government has knowledge of provision

of goods only in the countries where there exists socio-political tradition of

strong local government. Without this tradition, it is less expected for a pure

theory of local expenditures to be plausible.

mailto:[email protected]

mailto:[email protected]



Zviad Barkaia

he most controversial theory in public choice was written by !harles

". iebout. In his paper, #$ %ure heory of &ocal 'xpenditures,( iebout tries

to critici)e *amuelson+s and "usgrave+s assumption that expenditure is

handled at the central government level. e tried to create a model that

explains how local government controls expenditure for public good, which is

much more appropriate because of existance of knowledge on the local level.

It is worth to acknowledge, that #existence of knowledge( is ayekian+s

knowledge of the particular circumstances of time and place. I agree with

iebout who assumes that presumably local government has time and place

knowledge than federal government, and use of this knowledge provides

appropriate amount of goods 'xpenditures/ and ade0uate amount of price

for those goods axes/. owever, it is important to understand how people

or in our case institution/ ac0uire knowledge. he su1cient way to get

knowledge is practice. $s ayek explains we need to remember #how much

we have to learn in any occupation after we have completed our theoretical

training, how big a part of our working life we spend learning particular 2obs

3 local conditions, and of special circumstances.(4 &ocal government is in

the same condition. herefore, I argue that unlike the 5orth $merican and

5ordic *candinavian/ countries that have socio-political tradition of strong

iebout !. ". 6ct. 789/ $ %ure heory of &ocal 'xpenditures he :ournal of %olitical'conomy, ;ol. 9<, 5o. 8, 6ct., 789/, pp. <9-<4<. he =niversity of !hicago %ress

4 ayek, >riedrich $. 7<8/ "The Use of Knowledge in Society", $merican 'conomic

?eview. @@@;, 5o. <. pp. 87-A. $merican 'conomic $ssociation

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Zviad Barkaia

local government, in the countries where municipalities as decision maker

formal institutions are very weak, iebout+s model does not apply.

op-Cown D Bottom-=p

istorically, central government and nation state follows local

government and local centers of political power. &ocal tribes, clans, feudal

beneEces were controlled not by central governors but by local leaders. $s

an example, we can concentrate on the history of political evolution of

'urope and 5orth $merica. >or example in the 5ordic countries, where the

Canish Fing had only ceremonial power on Cenmark, 5orway, and *weden,

local rulers reinforced and adopted most function of state because of the

absence of central power. 'ven now, despite the fact that the central

governments in the *candinavian countries have wide regulatory and

functional abilities, local government still is presented as a strong part of

political decision-making process.A he power of local governments clearly

appears in *wit)erland, where cantons presently have a huge political and

economical power. hey are local planners, and they perform essential

political tasksG social welfare, local defense, local taxation, etc.<

A *hahs $. 49/ &ocal Hovernance in Ceveloping !ountries Washington C.!. he

World Bank.

< %olitical *ystem and Hovernment *wit)erlandJs !onstitution and >ederalism httpGKKswiss-government-politics.all-about-swit)erland.infoKindex.html

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http://swiss-government-politics.all-about-switzerland.info/index.html






Zviad Barkaia

he 5orth $merican model is characteri)ed as a bottom-up system.

Before civil war, local #civil republics( were decision makers and had a wide

political and economical power over its states. >ederal government

established local government as a formal institution but it was based on local

political circumstance.

owever, in Hermany policy maker is federal government while local

government is responsible only for delivery of goods to the local level. here

are Eve independent political levels from top to bottomG he level of

the European Union the Federal Republic of Germany he level of

the Länder he level of the districts and the level of the towns and

municipalities.5 =nlike the 5orth $merican and the 5ordic countries,

political system of Hermany is characteri)ed as op-Cown model.

AL

A<L

49L

AML

Figure 1 !ublic e"penditure of Go#ernment in Germany

'=

>ederal Hovernment

&ocal Hovernments

&Nnder

>igure O *ourceG >ederal "inistry of >inance 779G A4P/.

8&ocal Hovernment $dministration in Hermany -httpGKKwww.iuscomp.orgKglaKliteratureKlocalgov.htm

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http://www.iuscomp.org/gla/literature/localgov.htm




Zviad Barkaia

>igure O shows that the local expenditure of &Nnder *tates in

Hermany/ A9.9L/ exceeds to federal government+s spending A<./.

Intuitively we will assume that &Nnders has more power than federal

government. owever, from the Egure O4 we can End out that the biggest

source of revenue is shared taxes.

7L7L

9L

9AL

AL

Figure 2 %ources of Re#enue in &'nder

'xclusive axes

*peciEc-%urpose Hrants

Heneral-%urpose Hrants

*hared taxes6ther ?evenue

>igure O 4 *ourceG >ederal "inistry of >inance 779G A4P/.

$s you can see from the Egure O4, only 7L of revenue comes from

exclusive taxes. herefore, we can easily assume that local level is largely

depentens on higher-level government.

he !hinese model is further away from decentrali)ation. !hinese

provincial and local government practically are integrated with central one

the most popular phrase in the description of the local administrative system

of china is #directly under the Central Government ( he provinces and

autonomous regions are direct parts of central government.9

9 he &ocal $dministrative *ystem httpGKKwww.china.org.cnKenglishK%oliticalK4PP<4.htm

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http://www.china.org.cn/english/Political/28842.htm




Zviad Barkaia

herefore, we can assume that, in spite of the country is developing or

developed if it does not have socio-political tradition of strong local

government, it is highly possible that in this country we will End a very weak

and dependent lower level government.

5ew $pplication

o test theoretically iebout+s pure theory of local expenditures, I am

trying to apply this model to the *oviet =nion. 6f course my goal is not fully

explain the political circumstance in %ost-*oviet countries. his paper will be

not su1cient for this aim. I am 2ust trying to substitute iboute+s model to

the diQerent circumstance and show how hard is to generali)e it./ &et us

assume that the %ost-*oviet countries are local governments In the *oviet

era %ost-*oviet national governments were assumed as a local government./

and assume that they are agents that should provide goods and prices for

those goods. If we apply the theory of local expenditure on this area

according to iebout we should assume that all countries have time and

place knowledge as iebout assumed about local governments/ and all

countries are more or less able to provide public goods.

owever, after collapse of the *oviet =nion reality was diQerent.

Because of centrali)ed political system during of =**?, like in Hermany or

!hina and because of nonexistence of practical knowledge, local

governments were motionless. $fter the collapse of the *oviet =nion, new

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Zviad Barkaia

%ost-*oviet nations have had a number of unsolved problems because of

scarcity of knowledge. 'specially in small %ost-*oviet countries like $rmenia,

$)erbai2an, Belarus, Heorgia, etc. It was practically impossible to create a

system of tax collection and government spending.

!onclusion

In this paper I have argued that local government has knowledge of provision

of goods only in the countries where exists socio-political tradition of strong

local government. Without this tradition, it is less expected for a pure theory

of local expenditures to be plausible.

6n the example of the *oviet =nion, we can see that after collapse of central

government local states could not rearrange a political system for a long

time.

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Zviad Barkaia

*ibliograp+y

ayek, >riedrich $. 7<8/ "The Use of Knowledge in Society", $merican

'conomic ?eview. @@@;, 5o. <. pp. 87-A. $merican 'conomic $ssociation

&ocal Hovernment $dministration in Hermany -

httpGKKwww.iuscomp.orgKglaKliteratureKlocalgov.htm

%olitical *ystem and Hovernment *wit)erlandJs !onstitution and >ederalism

httpGKKswiss-government-politics.all-about-swit)erland.infoKindex.html

*hahs $. 49/ &ocal Hovernance in Ceveloping !ountries Washington C.!.

he World Bank.

he &ocal $dministrative *ystem

httpGKKwww.china.org.cnKenglishK%oliticalK4PP<4.htm

iebout !. ". 6ct. 789/ $ %ure heory of &ocal 'xpenditures he :ournal of

%olitical 'conomy, ;ol. 9<, 5o. 8, 6ct., 789/, pp. <9-<4<. he =niversity of

!hicago %ress

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Zviad Barkaia Public Choice Paper