1. Public Choice
The Free City of Christiania is a community of around 800 adults and 250 children within the city of Copenhagen. It was set up by "hippies and others" and is not subject to the same laws as the rest of Denmark. "There is no governing council or other administrative body, and everything is decided by consensus In practice, this means that many decisions are never made [T]ensions are rising among different groups of residents over how to share and pay for communal responsibilities" [Kinzer, New York Times, 5/16/1996, p. A3].
a. Discuss the advantages and disadvantages of this decision by consensus voting rule.
b. What voting procedures would you recommend for Christiania? What are the advantages and disadvantages of the voting rule you recommend?
c. Is there a voting rule that would always lead to a unique political equilibrium?
Explain why or why not.
2. Think about two public goods---public schools and food assistance for needy families. Consider the implications of the Tiebout model. Which of the goods is more efficiently provided locally? Which is more efficiently provided centrally? Explain.
3. The state of Minnegan is considering two alternative methods of funding local road construction, matching grants and block grants. In the case of the matching grant, Minnegan will spend $1 for every $1 spent by localities.
a. What is the price of an additional dollar of local spending in each case?
b. Which of the two methods do you think would lead to higher levels of local spending on roads? Explain your answer.
Problems on Taxation
4. Suppose that the U.S personal income tax system became a "flat tax" system, in which all tax payers paid a certain percentage of their incomes in tax, and in which there are no exemptions or deductions. In which way(s) could this flat tax be more regressive than the present U.S system? In which way(s) could this flat tax be more progressive than the present system?
(be sure to define what progressive and regressive taxes are)
By way of additional background, here is a "commentary" piece by Richard Rahn in the January 26, 2006, Washington Times that argues in favor of such changes:
5. The largest tax break for most Americans is the mortgage interest tax deduction, which allows home owners to deduct from their taxable income the amount of money they pay in interest to finance their homes. This tax break is intended to encourage home ownership. Compare this tax deduction to a uniform tax credit for home ownership on equity and efficiency grounds.
One of the tax reforms debated last year involved changing the mortgage interest tax deduction. In fact, in November of 2005, the President's Tax Reform Panel recommended capping the mortgage interest deduction.
From the http://taxpolicycenter.org/home/:
For information on the President's Advisory Panel's recommendations (including a link to the 290 page document), see
For information on who receives the mortgage interest tax deduction, see http://taxpolicycenter.org/publications/template.cfm?PubID=9344
For some analysis on changing from interest tax deductions to tax credits, see