ch18 - Chapter 18 Fiscal Federalism and State and Local...

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1 Chapter 18 Fiscal Federalism and State and Local Government Finance
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2 Levels of Government Federal State County (called a Parish in Louisiana) School, Water, Fire, Sanitation District City, Town, Village
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3 Grants-in-Aid The federal government sends 15% of its tax revenue to state and local governments. Most of this money goes to fund Medicaid and TANF programs that states are required to provide.
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4 Fiscal Federalism Fiscal Federalism is the structure of the levels of governments in which each level has sources of revenues and economic or fiscal responsibilities.
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5 Local Public Goods Examples: local streets sewers and sanitation systems parks police protection fire protection Local public goods are goods that create no rivalry to the good within a certain geographic area.
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6 Providing Local Public Goods Locally The benefit of providing local public goods with local tax dollars is that the preferences of the population using the services can be matched with their willingness to pay taxes to receive them. The problem with providing local public goods with local tax dollars is that differences in the ability to pay between local jurisdictions can cause differences in the provision of public goods: This is sometimes seen as inequitable.
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7 Centralized vs Decentralized Decisions An important problem for a society: which goods and services should be provided at which level of government? Are equity concerns more or less important than the concerns of matching preferences to service levels? For instance, should primary and secondary education be provided nationally or locally?
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8 Mobility between Jurisdictions: Voting with Your Feet When local public goods are provided in differing amounts in different communities, citizens can move from one jurisdiction to another to match their preferences for local public goods. This concept is called the
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This note was uploaded on 10/28/2011 for the course ECON 332 taught by Professor D.hyman during the Spring '11 term at American University of Beirut.

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ch18 - Chapter 18 Fiscal Federalism and State and Local...

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