Sunday, April 15, 2012
Competition Is Healthy For Governments, Too
This article discusses whether competition between governments is beneficial or not. It starts out by explaining how competition is essential for markets to function. It then turns to competition with respect to government. He argues that competition between governments allows people to choose to move based on the taxes and social services in the area. This is also the case for capital which has lead to a fall in corporate taxes over the last few decades. Conservatives are in favor of such competition between governments, due to their dislike of large governments. Liberals, on the other hand, are opposed to this competition between governments, because it can make it harder to redistribute income. The article also comments on the fact that it is easier to move to a different county or state than a different country. This is why tax systems are less progressive at state and local levels than at the national level.
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7 comments:
This is an interesting article. I guess I never really thought about governments in that light, but now that I think about it, it makes total sense that governments are competitive too. People have a choice of where they want to live, and often taxes and the quality of services provided are a deciding factor. It is all based on your personal preferences and income. Not everyone can afford to live in every community.
A lot of interesting points were brought up in this article. I could see this influencing not only statutory rates, but also efficiency of governance. As we talked about in class, the imperfection of government in fixing market failures is under-appreciated. I wonder if strong competition (as Mankiw notes, in municipalities) leads to increased governmental efficiency as well. It would be a difficult question to answer, as there are so many differences between municipalities (with heavy competition) and central governments (with lesser competition) that would change their respective efficiencies.
The author argues that "competition between governments allows people to choose to move based on the taxes and social services in the area." While this is true for people to move between states, it is very hard for any level of government to have a swift dramatic change. That is not to mention barriers to entry of living abroad due to immigrations law and similar regulations.
Absolutely agree that competition is good. The invisible hand of competition has proven to be the most efficient way for things to be ran and the government has proven to be inefficient (ex. toll roads). Hopefully, we see more competition in government due to its positive effects.
competition might work for government, and it's really interesting to think about it. The first question would still be what are the incentives / goals of running a government body like this. It seems like Mankiw proposes it to be a merit-based incentive system - and getting the most people, capitals and businesses to your area will be the ultimate goals. Hence there will be a tendency to get big, and also market (population) segmentation may exist, i.e. classes-based, or maybe even race-based differentiation between different localities.
Good article! I think the prime example of competition between states is how they can attract firms to their cities. I bet if Silicon Valley is receiving enormous tax benefits from California and to ensure that the valley states put. Also, I think that Ohio did it's fair share to attract Honda to it's local cities.
It is new to me that there exists some competition among local governments in different areas. I have to admit that the competition does exist. However, I would agree with liberals' opinion that competition among local governments may cause disparities in different areas in a nation. Large disparities are definitely bad for a country's development. We can easily see that in many third-world countries disparities in different areas are very large, but in developed countries like the U.S. the living standards in the whole nation are about the same (though price levels are different).
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