The Tiebout model , also known as Tiebout sorting , Tiebout migration , or Tiebout hypothesis , is a positive model political theory first described by economist Charles Tiebout in his article "A Pure Theory of Local Expenditures" (1956). The essence of this model is that there is actually a non-political solution to the problem of free riders in local government. In particular, competition across local jurisdictions places a competitive pressure on the provision of local public goods in such a way that the local government is able to provide the optimal level of public goods.
Video Tiebout model
Overview
Tiebout first proposed the model informally as a graduate student in a seminar with Richard Musgrave, who argued that the problem of free riders would require a political solution. Then, after obtaining his PhD, Tiebout describes his hypothesis in a seminal article published in 1956 by the Journal of Political Economy.
Tiebout believes that shopping and competition ideas can be brought to the public sphere to allow non-political solutions for optimal public goods delivery. The model argues that if the municipality offers a variety of basket of goods (government services) at various prices (tax rates), people with different personal assessments of these services and prices will move from one local community to another that maximizes their personal utility. Similar to how expenditures and competition lead to efficiency in good private markets, this model suggests that the choice of individuals at home will lead to the provision of a balance of local public goods in accordance with the tastes of the inhabitants, thus sorting the population into an optimal community. Basically, if someone does not like the provision of public goods from one city, they can move to the next city. This model has the benefit of solving two major problems with public goods supply by the government: preference revelation and preference aggregation.
Tiebout's paper argues that municipalities have two ways they can go to get more people in their community. One route is for municipalities to act as cartels, enforcing a single tax rate among various communities. In his paper, Tiebout claims this will downplay the voting power and get out of the individual. Another option is for municipalities to engage in tax competition. Tiebout claims the final outcome of both options is the same, because tax rates from various municipalities will gather around the average level. The tax competition for Tiebout is an integral part of the market process between the government and its citizens.
Maps Tiebout model
Authorized Model
Simple models (assuming that will be explained later) are helpful to illustrate Tiebout's insights and theories.
Suppose there are 2 * N families with identical revenue Y , 2 cities with N each house, and each city supplies G local public school. There are two types of families:
- N family with children, with utility U (C, G) . These families value both personal consumption C and the provision of public schools G .
- N old family without children, with utility U (C) . These families only appreciate personal consumption of C and get nothing from the provision of public schools.
Assuming that in every city, G is decided by the median selector and financed equally by city dwellers, families with children will move to cities where local public schools provide G = G * . The elderly family will move to a school where G = 0. In the end, one city will be all families with children and the other is all old families without children. In this scenario, both cities can provide the optimal level of the public good G ( G * in the city with all families with children and 0 in cities with all elderly families).
Assumption
The Tiebout model depends on a set of basic assumptions. The main assumption is that consumers are free to choose their communities, can move freely (without cost) throughout the city, have perfect information, and there is equitable public financing. This basically means that they can move from community to community at no cost, and that they know everything they need to know about the services provided by the local government and the tax rates of all local governments. Furthermore, the model requires the existence of a sufficient city so that individuals can sort themselves into groups with the same preference for public goods. For this reason, the Tiebout model has proven to be the most accurate in the suburbs with many different independent communities. Moving between communities in these areas tends to have the lowest cost, and a range of possible options are very diverse. In areas affected by rural flooding, Tiebout's breakdown explains why more affluent populations live in communities protected by river embankments, while poorer populations tend to live without expensive and less used protection. Finally, this model also assumes that there is no externality or spillover of public goods in the cities.
The exact assumption that Tiebout made in his first statement about the model was:
- Mobile consumers, who are free to choose where they live. There are no charges associated with the move.
- Complete information.
- Many communities to choose from.
- Travel is not a problem.
- Public goods are not spilled in terms of benefits/costs from one community to the next.
- Optimal city size exists: economies of scale.
- The community is trying to achieve an "optimal size".
- The community is rational and tries to keep the public "evil" customers away.
- Any differences in the fiscal attractiveness of a city will be capitalized into house prices. The price of each house reflects the cost (including local property tax) and benefits (including local public goods) from staying in that house.
Limitations
- Needs the same financing for public goods by all inhabitants (lump sum tax) deemed very unfair
- Cities typically finance their public goods rather than through property taxes levied in proportion to home values. The problem caused by the taxation of this property is the poor people chasing the rich. Rich people pay a larger share of the public goods bill than the poor, so people who value those things want to live in communities with people who are richer than they are.
Factors that determine the optimal level of decentralization
- Tax allowance relationships - goods such as public roads with strong benefit links must be provided locally. On the other hand, welfare spending should be handled ideally by the federal government.
- The extent of positive externalities - public goods with large spillover effects may be less tested. In this case, the federal or state government can promote more investment from the local level through grants.
- Economic scale - goods with large economies of scale (eg, national defense) are not efficiently provided by local jurisdictions.
Evidence
The Tiebout model implies that when people have more choices, there will be uniformity in taste for public goods among the urban population. Supporting evidence comes from Gramlich and Rubinfeld (1982), who surveyed Michigan households at their request for public goods. They found that in larger metropolitan areas, where people have greater choice of communities where they can live, preferences for public goods are more similar in the city than in smaller areas with fewer self-contained cities to choose from. In addition, in urban/suburban areas, the population is much more satisfied with the level of public goods expenditure than in non-urban areas where there are fewer ways to choose with one's feet because there are fewer cities to be moved.
See also
- Exit, Sound, and Loyalty
- Foot voting
- Tax options
References
- Tiebout, C. (1956), "A Pure Theory of Local Expenditures", Journal of Political Economy , 64 (5): 416-424, doi: 10.1086/257839 .
- Fischel (Ed.), The Tiebout Model at Fifty, Essays in Public Economics at Honor of Wallace Oates, 2006.
- Notes
Source of the article : Wikipedia
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