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.
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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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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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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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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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%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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*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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