Capitalization of public goods refers to the economic phenomenon that some assets absorb the cost of public goods and the prices of assets rise consequently. It results in an interpersonal and interregional income distribution effect. The distribution effect from capitalization of public goods illuminates that it is reasonable to levy property tax and provide more public goods in rural areas.
Keywords: Public goods, Capitalization, Distribution effect, Revenue bonusThere is a close relation between income distribution and financial revenue and expenditure, and a variety of literature has been published on this issue. In China, relevant studies are focused on the influence of tax, especially individual income tax, on income distribution. In respect of financial expenditure, emphasis is placed on the impact of transfer expenditures, especially social security expenditures, on income distribution. However, there is no literature dedicated to the influence of purchase expenditures, including public goods supply, on income distribution. In western developed countries, relevant topics relating to the influence of public goods supply on income distribution have been discussed relatively earlier. Wolfgang Buchholz and Wolfgang Peters (2008) designed a selection mechanism satisfying the benefit principle, the ability-to-pay principle and the equality principle of taxation, thus realizing the effective burden sharing of public goods and keeping the income neutrality during financing for public goods. Geoffrey Brennan and Michael Brooks (2007) discussed the optimality in public goods supply. They argued that the respect to social rules would affect the voluntary supply of public goods, thus making the public goods supply deviate from the optimal level based on evaluation of utility. Henry Aaron and Martin McGuire (1970) analyzed the relation between public goods and income distribution: due to different income levels and consumption patterns, people evaluate the utility of public goods differently; therefore, public goods have an income distribution effect. When a person receives utility from public goods greater than the contribution he makes, it implies he has received consumption subsidy; when a person receives utility less than his contribution, it implies he has paid additional tax. This distribution effect can be balanced at the optimal level of public goods supply, that is, consumption subsidies equal to additional taxes. Excessive supply of public goods results in negative net distribution effect, while inadequate supply leads to positive net distribution effect. Geoffrey Brennan (1967) disclosed the distributional implications of public goods. He argued that the distribution effect of public goods originated from people's different evaluations of the utility of public goods. Not only there are information obstacles for evaluating the distribution effect of public goods, but people will adjust their consumption patterns according to tax structure and public goods supply; hence, the income neutrality of e...