Why are state and local governments unable to carry large levels of debt?
A) They are constrained by their economic capacity to service their debt.
B) They cannot levy income taxes.
C) They all have upper limit restrictions on the rate at which they can tax.
D) Federal legislation prohibits it, because federal funds will ultimately have to finance a state or municipal bail out.

Question

Quizplus · Accepted Answer

State and local governments cannot carry large levels of debt because they are constrained by their economic capacity to service their debt. Unlike the federal government, state and local governments cannot simply print money to pay off their debts. They must rely on tax revenues and economic growth to service their debt, and if their debt levels become too high, they may not be able to generate enough revenue to pay off their debts. This can lead to default, which undermines their creditworthiness and makes it harder for them to borrow in the future.

Why Are State and Local Governments Unable to Carry Large