The role of local governments

Question 1

Why is the national gov in charge of fiscal policy instead of the local

Answer 1

1. Local gov printing money is chaotic - local income goes to spending on outside goods so would be weak
2. Increase in tax may mean rich people move out

Question 2

Advantages and disadvantages of local provision of public goods

Answer 2

1. Diversity in demand. goods and taxes. Households differ in their demands for local public goods, and this diversity can be accommodated by a system of small municipalities and school districts, each providing a different mix of local public
2. Externalities. Some locally provided products benefits the municipality or school district. In this outsiders, generating inefficient choices. case, local spillover to people outside voters will ignore the benefits of
3. Scale economies. If there are scale economies in the provision of public goods, a system of small local governments has a relatively high production cost.

Question 3

how is the local provision of a public good efficient

Answer 3

The advantages outweigh the disadvantages
- Diversity in demand is relatively demand
- Externalities are relatively small
- Scale economies are relatively small

Question 4

What goods are scale of economies effective

Answer 4

Provision of water and sewage - this is because this is capital intensive

Question 5

What goods are scale of economies ineffective so they use intergovernmental contracts

Answer 5

Police protection, fire protection

Question 6

What should subsidy be equal to

Answer 6

Marginal external benefit of public god

Question 7

Features of a local public good

Answer 7

Non-rival, non-excludable
Benefit of a local public good confined to a set area

Question 8

The Tiebout model

Answer 8

Households will sort themselves into municipalities according to their demand