The main theme of this book is government's strategic behaviors. We show
that different budget structures give governments incentives to behave
differently. We first discuss theoretically the design of an optimal tax
system, promoting the Leviathan government to maximize social welfare in
order to maximize its own revenue. We apply the Buchanan-Brennan rule to
examine the effects of a tax system on the efficiency of agricultural
production in the context of Chinese local governments. Within the
principal-agent framework, we illustrate how the problem is inherent in
the agriculture tax system in China and propose our solution of special
earmarking. Then we examine empirically how government behaviors vary
with different budget structures. We argue that the environmental
performance is affected by government policy, therefore relates
inherently to the budget structure and government incentives. Our
empirical evidence provides support that structures of revenue and
expenditure do affect the government's incentives to control pollution.
So, to achieve better environmental performance, changes in the budget
structure might be helpful.