Does Tiebout’s “extreme” local expenditures model achieve these three objectives below?
According to Tiebout's article, I think the satisfactory theory of public finance require 3 objectives. These objectives are:
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In this article, Charles Tiebout is trying to lay out a way in which public goods can be allocated as efficiently as private goods. He proposes that public goods can be allocated through his extreme model of local government. If we assume that his extreme model can exist in the real world, then Tiebout does satisfy the three objectives that you mention. If, however, we look closely at Tiebout’s model, we are forced to conclude that it cannot exist in the real world and therefore does not completely fulfill his objectives.
In theory, Tiebout’s extreme model would certainly cause voters to reveal their preferences and would then fulfill those preferences and charge the voter for them. Let us see how this is so. In Tiebout’s model, voters have the chance to reveal their preferences because there are many small localities, each of which can offer a different level of services. The voter is easily able to move from one locality to the next, thus revealing his or her preferences. The localities will fulfill the voters’ preferences by offering sets of public goods that are appealing enough to attract residents. They will then charge a level of taxation that is commensurate with the services provided. Voters will stay if the mix is good and will leave if it is not. This is very efficient and will allocate public goods while fulfilling the objectives you mention.
The problem is that Tiebout’s model cannot really exist in the real world. There are at least two problems with his model. First, his model assumes that “consumer-voters” have full information about the level of services and taxes in each locality. This is simply not realistic. It is not realistic, for example, for consumer-voters to know how good the public libraries are in each of the many small towns in their area. This kind of information is not easily available. Second, his model assumes that there are no costs to moving. In his model, a voter can move to a different town as easily as a shopper can choose one store over another. This is not realistic in a world where we own our own houses and in which we have emotional ties to the places where we live.
In the real world, then, Tiebout’s model does not completely satisfy the objectives you mention. The major problem is in getting the voter to reveal their preferences. It is too hard for the voter to know which locality will fulfill his or her preferences and to move to that locality.
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