Question

Answer parts (a) and (b) of this question on redistribution in the context of the Tiebout model. Your answers should demonstrate an understanding of the Tiebout model, and describe the appropriate arguments regarding redistribution in both cases.

a. If the Tiebout model perfectly reflects reality, can redistributing funds from high-revenue, high spending communities to low revenue, low spending communities increase social efficiency? Why or why not?

b. If some of the assumptions of the Tiebout model fail to hold in the real world, can such redistribution increase social efficiency? Why or why not?

Answer 1

Answer parts (a) and (b) of this question on redistribution in the context of the Tiebout model. Your answers should demonstrate an understanding of the Tiebout model, and describe the appropriate arguments regarding redistribution in both cases.

a. If the Tiebout model perfectly reflects reality, can redistributing funds from high-revenue, high spending communities to low revenue, low spending communities increase social efficiency? Why or why not?

Tiebout model was proposed in an article "A Pure Theory of Local Expenditures" (1956). It proposed that competition across local jurisdictions can provide the optimal level of public goods.

Tiebout assumed that there is perfect mobility, information and at no cost moving between societies. People will have incentives to move where they get better terms. Hence creating an equality will certainly increase social efficiency. However, thus must be done through creation of proper and non distortionary taxes or sources of funding. Otherwise people will have temporary incentive to move to other place.the source of finance should be identified properly.

b. If some of the assumptions of the Tiebout model fail to hold in the real world, can such redistribution increase social efficiency? Why or why not?

The main assumptions of his theory were: Perfect mobility and at no cost of moving and perfect information.

Even if some of Tiebout's assumptions fail to hold true then also redistribution will increase social efficiency as inequality will reduce and people will not shift and poor, middle income and rich people will not have incentives to make different socio-economic groups. As people get equal access at same costs then incentive to move will not be there.

Even limited information will make this known to all.

In practice these assumptions are difficult to fulfill and also redistribution will still create further gaps and different societies will be created.