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Ch10 Reading State and Local

Ch10 Reading State and Local

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Published by Katherine Sauer

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Categories:Types, School Work
Published by: Katherine Sauer on Jan 04, 2012
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02/09/2014

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State and Local Government Expenditures (ch 10)
Optimal Fiscal Federalism
refers to the question of which activities should take place at which level of government.
 A. Fiscal Federalism in the US and Abroad 
 The Tenth Amendment to the US constitution says:In 1902, the federal government accounted for _______% of total government spending.- local governments accounted for ________%- state governments accounted for ________%The federal government limited itself to spending on----State and local governments were responsible for -------The various levels of government operated within their own spheres and rarely overlapped.State and local governments received less than _______% of funding from the federalgovernment.By 1952, the federal government accounted for ________% of total government spending.- local governments accounted for ________%- state governments accounted for ________% _______% of state and local funding came from the federal governmentThis change was largely due to 3 factors:1. 16
th
Amendment2. New Deal3. social insurance and welfare programs
 
S
pending and Revenue of 
S
tate and Local Governments
 
Fiscal Federalism Abroad
 B
. Optimal Fiscal Federalism
 
1.
Tiebout Model
 In 1956, Charles Tiebout posed the question: ³What is it about the private market that guaranteesoptimal provision of private goods that is missing from the market for public goods?´His answer:--When public goods are provided at the local level, people can vote with ________________________.He argued that the threat of exit can induce ___________________________ in local public goods production.
2
.
Problems with the Tiebout Model
 a. Assumptions that might not hold in reality:1. perfect mobility2. perfect information3. ability to freely choose over a range of towns4. efficiencies of scale
 
 b. Issues with Tiebout Financingc. no externalities / spillovers
3
.
Evidence on the Tiebout Model
 Two types of tests reveal that the provision of local public goods is generally consistent with the Tieboutmodel.a. resident similarity across areas b. capitalization of fiscal differences into house prices
4
.
Optimal Fiscal Federalism
 What are the normative implications of the Tiebout model for the optimal design for fiscal federalism?The Tiebout model implies that the extent to which public goods should be provided at the local level isdetermined by 3 factors:
a
.
tax-benefit linkages
which are:

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