Deficit and Debt

Question 1

Tiebout Competition/Fiscal Federalism

Answer 1

People vote with their feet – the move to the area that provides the best basket of goods for their preferences.

Question 2

8 conditions for TC/FF

Answer 2

1. Mobile consumers – there must be very low barriers to movement between states, cities, and within countries. In recent years, this has been harder.
2. Complete Information – knowledge of costs and benefits to moving and living in a different place.
3. Many communities to choose from.
4. Commuting costs are low – it is possible to live one place and work in another.
5. No Public Good spill-over – the benefits of being in one place are only consumable there.
6. Optimal size exist – there is an optimal size for my community and my preferences.
7. Communities seek the optimal size
8. Communities are rational – Communities seek good residents and discourage bad actors