Example of Hour Exam #2 - spring 2001

Example of Hour Exam #2 - spring 2001 - Describe how...

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Eco(Fin) 354 Public Finance Spring 2001 Hour Exam #2 1. (30 points) Draw a carefully labeled Lorenz curve and explain what is meant by the GINI coefficient. Describe what can be revealed by comparing a pre-tax Lorenz curve with a post-tax Lorenz curve. 2. (35 points) Write an essay on grants-in-aid from the national government to state governments. In this essay: a. Explain the difference between matching grants and lump sum grants and why both are needed in a system of fiscal federalism. b. Explain what is meant by the "flypaper" effect. 3. (35 points) Explain what is meant by relative fiscal capacity and tax effort.
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Unformatted text preview: Describe how capacity and tax effort are measured and discuss some of the uses to which these measures are put. Use the following data to demonstrate how we might measure the capacity and tax effort of states A, B and C. State A State B State C Tax Base Tax Rate Tax Base Tax Rate Tax Base Tax Rate Personal Income $600,000 20% $300,000 10% $240,000 10% Retail Sales $300,000 7% $180,000 7% $120,000 5% Property $240,000 5% $120,000 7% $ 60,000 7% Population 6 6 6...
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