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V. Local Government Policy Simulations

The system simulations presented here are limited to changes in people empowerment, tax rate changes and changes in public education expenditures. As the title of this paper states, the objective is to keep the government sector as small as possible under the constraint of the highest possible disposable household income and development status. For space reasons, the simulations of policy changes are shown for the Thai locality only. This should provide sufficient evidence, as the policy simulation results vary in degree only but appear to point in the same direction for all localities.

The simulations have a time horizon of 50 years, with a time step of 0.125 years. First, the real actual local systems will be time simulated with changing people empowerment status. The empowerment status is determined by the local laws and whether the villagers make use of their legal rights as revealed in the field research. The status found through the field research in each locality is called real system. The real systems' empowerment policy status is as follows.

TABLE 7: The real local empowerment status:

Location Identifier Definition
Huay Yai HYreal people have no fiscal nor project powers, i.e. no power
Labac Labacreal people have project but no fiscal powers, i.e. projectpower
Zorita Zoritareal people have project but no fiscal powers, i.e. projectpower
Schwende Schwendereal people have project and fiscal power, i.e. fullpower

Figure 7 below shows the growth of disposable household incomes in the localities when the real systems empowerment parameters are not changed. The values given on the vertical axis are real values in 1998 US$. Curve 1 represents Huay Yai, curve 2 Labac, curve 3 Schwende, and curve 4 Zorita.

Figure 7

FIGURE 7: Disposable Household Incomes in The Real Systems

From the above simulations it becomes clear that without massive economic and political changes Zorita, Labac and Huay Yai will not be able to catch up Schwende due to Schwende's very high starting value. The same applies to the development status as shown in Figure 8. Development Status is measured on the vertical axis relative to the initial level of Schwende, which had a value of 1. The development measurements are to be interpreted as indicators of direction and position, and not as absolute or relative changes in development status.

Figure 8

FIGURE 8: Perceived Development Status in the Real Systems

Figure 9 below shows that the locality with the least empowered villagers, Huay Yai, eventually achieves the highest level of local government consumption. The place with the most empowered villagers, Schwende, has the lowest local government consumption ratio. The following analysis therefore concentrates on the differences in the transition from total absence of villagers' power to full empowerment in Huay Yai.

Figure 9

FIGURE 9: Local Government Consumption as Percent of Migration Adjusted Village Income in the Real Systems

Figure 10 below shows that only full empowerment can reduce the local government consumption ratio in Huay Yai, and as Figures 11 and 12 show, a policy of full empowerment would also be accompanied by the highest disposable income and development status.

Figure 10

FIGURE 10: Local Government Consumption Huay Yai: Change in Peoples' Empowerment

Figure 11

FIGURE 11: Disposable Household Income Huay Yai: Change in Peoples' Empowerment

Figure 12

FIGURE 12: Perceived Development Status Huay Yai: Change in Peoples' Empowerment

Figures 10 through 12 also show that if villagers are financially empowered (as shown in curve 3) that they will hold government consumption down, resulting in low taxes in the locality, attracting investors. Their investments increase disposable household income and development status to a practically identical level as achieved with full empowerment. Full empowerment, however, achieves a somewhat lower government consumption ratio. Finances are the key factors in the local development process. A policy where villagers are given full financial empowerment without project empowerment would also be an efficient policy alternative to control the local government, but this kind of setup in which the keys to power are given away will probably not be found anywhere in reality if citizens are not fully empowered already.

In a second simulation, the local government of Huay Yai halves the initial local tax rate from 5.81 percent to 2.9 percent, and doubles education allocation from 7 percent of the local budget to 14 percent. Increased education spending produces a higher education status. This increases accountability pressure, which reduces irregular financing and finance leaks. This enhances private investments and local incomes, which gives local government more regular income, enabling lower tax rates. Thus the government consumption ratio should also be pushed down.

Figure 13

FIGURE 13: Huay Yai Development Status: Policy Changes from No Empowerment to Full Empowerment with Tax Rate Reduced by Half, and Education Budget Doubled

Figure 14

FIGURE 14: Huay Yai Disposable Household Income: Policy Changes from No Empowerment to Full Empowerment with Tax Rate Reduced by Half, and Education Budget Doubled

Figures 13 and 14 show that the most powerful driver for disposable income and development status is lower tax rates. Increased education spending has only a minimal effect on these aggregates. Figure 15 below again demonstrates that full empowerment and tax rate reductions keep the local Leviathan at bay, and that increases in education spending is less powerful in this respect.

Figure 15

FIGURE 15: Huay Yai Local Government Consumption Ratio: Policy Changes from No Empowerment to Full Empowerment with Tax Rate Reduced by Half, and Education Budget Doubled

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