Deck 18: Fiscal Federalism and State and Local Government Finance

Question 1

Economic stabilization is most effectively provided by:

A) a central government.
B) state governments.
C) local governments.
D) regional governments.

Answer 1

a central government.

Question 2

Local tax bases are less elastic than national tax bases.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

Under a federal system of government,

A) all government goods and services are supplied by a central government.
B) all government goods and services are supplied by local governments.
C) both central and noncentral governments supply goods and services.
D) all public choices are made nationally.

Question 7

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.

Question 8

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

Question 9

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

Question 10

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.

Question 11

Matching grants only result in income effects.

Question 12

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

Question 13

Income redistribution is a service likely to be most effectively administered by the federal govern?ment.

Question 14

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

Question 15

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.

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.

Question 17

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

Question 18

Mobility between communities is not critical to the Tiebout model.

Question 19

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

Question 20

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

Question 21

The central economic problem of fiscal federalism is:

A) the division of taxing and expenditure functions among different levels of government.
B) the choice of the collective choice rule for central governments only.
C) the level of public goods to be provided by a central government only.
D) how to achieve an equitable distribution of income.

Question 22

The political equilibrium in a local jurisdiction for a given public good corresponds to the median most-preferred outcome of:

A) all national voters.
B) the President.
C) local voters.
D) both a and c

Question 23

A federal highway grant will provide funds for roads supplied by state and local governments if these governments pay 50 percent of the cost of the roads. This grant is an example of:

A) revenue sharing.
B) a matching categorical grant.
C) a general purpose grant.
D) a nonmatching block grant.

Question 24

A grant received by a local government will:

A) not affect the political equilibrium in that jurisdiction.
B) change the political equilibrium in that jurisdiction.
C) always increase government expenditures in the recipient jurisdiction by the amount of grant.
D) both b and c

Question 25

A decentralized system of government:

A) tends to result in uniformity in the quantity and quality of government services in all jurisdic?tions.
B) allows diversity in the quantity and quality of government goods and services.
C) conducts national elections on all issues.
D) is undemocratic.

Question 26

Local public goods:

A) are pure public goods for the entire nation.
B) are those whose benefits are nonrival only for the population of a particular geographical area.
C) have benefits that are subject to exclusion by pricing for local consumers.
D) are best provided by a central government.

Question 27

In general, local tax bases tend to be:

A) less elastic than national tax bases.
B) more elastic than national tax bases.
C) equally elastic when compared with national tax bases.
D) very inelastic.

Question 28

What is generally the best measure of fiscal capacity for local governments?

A) income per capita
B) per capita retail sales
C) assessed valuation per capita
D) per capita expenditure

Question 29

Matching grants:

A) will not increase government spending in recipient jurisdictions.
B) increase government expenditures in recipient jurisdictions more than nonmatching grants of an equal amount.
C) increase government expenditures in recipient jurisdictions less than nonmatching grants of an equal amount.
D) increase tax rates in recipient jurisdictions.

Question 30

According to the Tiebout model of local government expenditure,

A) all local governments will supply the same kinds and amounts of services.
B) mobile citizens respond to differences in taxes and expenditures by moving to the jurisdiction that maximizes their well-being.
C) the average costs of government services is constant.
D) tax rates do not influence a citizen's choice of residence.

Question 31

A categorical grant:

A) does not restrict the use of transferred funds.
B) usually specifies the use to which the funds must be applied.
C) is used rarely in the United States.
D) is not used at all in the United States.

Question 32

Show how a matching grant provides incentives for residents of state and local jurisdictions to pro?vide themselves with more of the services than the grant subsidizes. Why are matching grants more effective than nonmatching grants in increasing expenditures?

Question 33

The increased suburbanization of urban population was an important social phenomenon of the 1960s and 1970s in metropolitan areas in the United States. Explain how the decision to migrate to another jurisdiction in a metropolitan area is influenced by policies of central city and suburban government policies. What steps could central city government use to encourage the return of the middle-income class to the city? Explain why regressive taxes may be necessary to retain middle- and upper-income residents in the city.

Question 34

An increase in the local retail sales tax rate will increase revenue collected by a local government:

A) if the tax base is elastic.
B) if the tax base is unit elastic.
C) if the tax base in inelastic.
D) no matter what the value of the elasticity of the tax base.

Question 35

Mobility:

A) is not essential to the Tiebout model.
B) can hamper a jurisdiction's ability to raise revenues.
C) may be part of the reason for the reliance on local property taxes for the raising of local government revenue.
D) both b and c

Question 36

Which of the following is true about a federal system of government?

A) There is only one level of government.
B) There are several levels of government.
C) A central government directs local governments to supply all public goods at levels determined nationally.
D) There are only local governments.

Question 37

Which is an example of a interjurisdictional externality?

A) residential property tax
B) local sales tax
C) wage tax on all workers in a community
D) both b and c

Question 38

A local wage tax can:

A) create tax competition if a neighboring jurisdiction does not have such a tax.
B) export tax onto workers in the local jurisdiction who live outside of the local jurisdiction.
C) prevent tax competition among other local jurisdictions.
D) both a and b

Question 39

Fiscal capacity:

A) decreases with the ability of the jurisdiction to export tax.
B) is a measure of the ability of a jurisdiction to finance government-provided services.
C) is always enhanced by mobility.
D) is not dependent on the wealth of the community.

Question 40

Which of the following is best supplied by local governments?

A) national defense
B) income redistribution
C) money
D) fire protection