Question 1

A federal system of government allows both centralized and decentralized collective choices.

Accepted Answer

A federal system of government divides power between a central government and regional governments or states, allowing for both centralized decision-making and decentralized decision-making at different levels of government.

Question 2

According to the Tiebout model of fiscal federalism, a system of many local governments improves the efficiency of allocation of resources to and among public goods.

Accepted Answer

The Tiebout model suggests that a system of many local governments improves the efficiency of allocation of resources to and among public goods by allowing individuals to "vote with their feet" and choose the local government that provides the level and quality of public goods they desire. This competition among local governments creates incentives for each to become more efficient in providing public goods in order to attract and retain residents.

Question 3

A federal system of government only has a central government that supplies all public goods and services.

Accepted Answer

In a federal system of government, power is divided between a central government and individual states or provinces. Both the central and state governments may provide public goods and services.

Question 4

Tax exporting occurs if the price of goods produced in the state and purchased by out-of-state residents rises as a result of in-state taxes.

Accepted Answer

Tax exporting refers to the situation where a state's taxes on goods produced within the state are passed on to consumers outside the state, resulting in higher prices for those consumers. This is because the cost of production for the in-state goods increases, and producers pass on those higher costs to consumers in other states.

Question 5

Matching categorical grants can be used to internalize interjurisdictional positive externalities.

Accepted Answer

Matching categorical grants provide funding to states or localities that meet certain criteria, and require the recipient to match a portion of the funding. This can be used to incentivize interjurisdictional collaboration on projects that can have positive externalities, such as reducing pollution or improving infrastructure. By requiring a match, the grant can help internalize the benefits of the project across multiple jurisdictions.

Question 6

Income redistribution is a service likely to be most effectively administered by the federal government.

Accepted Answer

The federal government has the resources and authority to implement income redistribution policies that affect the entire country, such as taxes and social welfare programs. State and local governments may also have some role in income redistribution, but their reach is more limited.

Question 7

If a local jurisdiction's tax base is elastic, an increase in tax rates will decrease tax revenue.

Accepted Answer

If a tax base is elastic, it means that a change in price (tax rate) has a larger effect on the quantity demanded (tax revenue). Therefore, an increase in tax rates would lead to a decrease in tax revenue. On the other hand, if a tax base is inelastic, a change in price would have a limited effect on the quantity demanded, and tax revenue may actually increase with a tax rate increase.

Question 8

Matching grants only result in income effects.

Accepted Answer

Matching grants can have both income and substitution effects. The income effect comes from the increase in grant funds matching an increase in the recipient's own funds, leading to a total increase in available resources. The substitution effect can occur if the matching grant is tied to specific activities or conditions, leading the recipient to shift their behavior to meet those requirements, potentially resulting in a reduction of other activities or investments.

Question 9

According to Tiebout, individuals will self-select into communities where the government budget best satisfies their own personal preferences.

Accepted Answer

Tiebout's theory of "voting with your feet" suggests that people will move to communities that have the government policies and services that align with their preferences. This self-selection is seen as a form of competition between communities, where each community tries to attract and retain residents by offering the policies and services that are most in demand.

Question 10

When each local government supplies goods and services to its citizens, the political equilibrium in each jurisdiction corresponds to the median most-preferred outcome of all national voters.

Accepted Answer

The statement is incorrect. The political equilibrium in each jurisdiction corresponds to the median most-preferred outcome of the local voters, not national voters.

Question 11

Mobility between communities is not critical to the Tiebout model.

Accepted Answer

Mobility between communities is a key assumption in the Tiebout model. The theory proposes that individuals will choose to live in communities that represent their preferences, and if they are not satisfied with their current community, they will move to another one that better aligns with their preferences. This mobility is considered a mechanism for ensuring that communities provide the desired level of public goods and services to their residents.

Question 12

Economic stabilization can be easily supplied to citizens by local governments.

Accepted Answer

Economic stabilization involves significant policy interventions by national governments and central banks, such as fiscal stimulus, monetary policy adjustments, and international economic cooperation. Local governments may have some limited ability to provide targeted relief measures or support for small businesses, but they do not have the resources or authority to enact full-scale economic stabilization policies.

Question 13

Interjurisdictional externalities are costs or benefits of local government goods and services to residents in other political jurisdictions.

Accepted Answer

Interjurisdictional externalities refer to the impact of local government actions on individuals or communities outside of their jurisdiction. These externalities can arise from policies related to transportation, land use, or environmental regulations, among others. Examples of such externalities include traffic congestion in one municipality affecting air quality in neighboring communities, or the construction of a new housing development in one jurisdiction affecting property values and tax revenues in nearby areas.

Question 14

Economic stabilization is most effectively provided by:

Accepted Answer

Economic stabilization is a macroeconomic policy that involves the use of fiscal and monetary policies to reduce the volatility of the business cycle and keep the economy operating at full capacity. This is most effectively provided by a central government, which has the power to implement these policies on a national level and coordinate efforts across regions and sectors. State, local, and regional governments may also play a role in economic stabilization, but they are generally limited in their capacity to address macroeconomic issues.

Question 15

Under a federal system of government,

Accepted Answer

Under a federal system of government, both central and noncentral governments supply goods and services. This means that there is a division of power between the national government and state or local governments, with each level having their own set of responsibilities and duties. This allows for a more decentralized approach to governance, with decisions being made at the most appropriate level of government.

Question 16

A federal system of government allows a wider diversity of preferences for government-provided services to be accommodated when compared to nonfederal, centralized government.

Accepted Answer

A federal system of government allows for more localized decision-making and the ability for different regions or states to have varying levels of government-provided services based on their respective needs and preferences. A nonfederal, centralized government may have a more one-size-fits-all approach to services provided.

Question 17

Taxing hotel rooms and restaurant meals in a city with lots of tourism is an example of tax exporting.

Accepted Answer

Tax exporting refers to collecting taxes from non-residents who visit a particular location. Taxing hotel rooms and restaurant meals is a common way to export taxes in cities with high tourism activity, as visitors contribute to the local economy but may not pay other local taxes.

Question 18

A matching grant will increase local government expenditures by more than an equal-value, general-purpose grant.

Accepted Answer

A matching grant requires the local government to provide its own funds in order to receive the grant funds, leading to higher overall expenditures. A general-purpose grant does not have this requirement.

Question 19

Financing local schooling with the local property tax can guarantee equality of opportunity in education.

Accepted Answer

Financing local schooling with the local property tax can lead to funding disparities between wealthier and poorer communities, resulting in unequal opportunities in education.

Question 20

Local tax bases are less elastic than national tax bases.

Accepted Answer

The answer of Local tax bases are less elastic than...

Quiz 18: Fiscal Federalism and State and Local Government Finance