Foundation Grants and Guaranteed Tax Base Grants in Education Finance - Essay Example

Foundation Grants and Guaranteed Tax Base Grants in Education Finance Hello, this class is urban economics. It is answer key that I already wrote down but it should be different to original answer. Please paraphrase all and you can add or omit.Thank you. 1. Using an appropriate diagram, show why politicians interested in reducing spending on public assistance (welfare) programs would prefer a block grant program to a matching grant program. Explain. Relate to the “flypaper effect”. (Graph need not be computer generated.) As we showed in class, both Block grant programs and matching grant programs increase local spending on the programs targeted by the grant.

Nevertheless, a matching grant program encourages even more spending on a given program, while the matching grant in actual fact reduces the opportunity cost of expenditure of an additional dollar on the program that is targeted.For the flypaper effect, it can be defined as a result that comes up when a dollar of grants-in-aids that are exogenous which lead to public spending that is significantly great as compared to a citizen dollar income. Money does stick at the point where it hits. It is evident, from the above figure that the matching grant leads to a greater increase in welfare spending than the block grant program. 2. In your own words, summarize and describe the Tiebout model/hypothesis.

Explain how and why the Tiebout model implies that people will sort into relatively homogenous communities based on income or some other characteristic. Under given assumptions like perfect mobility and information, no spillovers that are inter jurisdictional, no scale economies, and no head tax that finances a public good that is local. Then each household will move into an influence that makes the optimal collection of goods in the local scene. This will carry-on until households have fully sorted themselves creating a point of equilibrium.

This implies that members of the community will be segregated by class, race, income, and so on. The reason for this is the fact that the taste of public goods in the local scene generally directly varies with the levels of income and other several characteristics. 3. Explain why some might consider property taxes regressive. Might this have been one reason for the implementation of Proposition 13 in 1978 in California? Whether a property tax is deemed regressive depends on the way someone views the tax.

According to Zodrow (2001) “the incidence of property tax- still remains to be one that is controversial both in state and local public finance. The view which is traditional argues that property tax fully shifted towards the consumers’ loss when it comes to higher prices in housing. To the contrast, the “benefit view” of property tax has a conclusion that it is simply a payment for public services received locally. The Tiebout “headtax” is has an equivalence to benefit tax. In this case, people who consume are paying for services they receive from their local jurisdiction, in that the tax lacks the regressive effect.

Perfect capitalization changes property into benefit tax. In the case of Prop 13 that capped taxes on property, If one believes in traditional property tax view then the positive regressive tax decreased. This in-turn will help the consumers. If one believes in the benefit view, then all Prop 13 did was to make certain homes more expensive in the long run.4. The objective of the state of Egalitaria is to equalize educational opportunity (defined as the same average achievement level in every school).

Comment on the following: “To achieve its objective, the state must equalize educational spending (spending the same amount per student in every school).” The answer to the question is on the equality distinction VS equity. Equality in amounts of dollars, assuming all districts encounter the same challengers, populations of students and other constrictions would be reasonable. Nevertheless, in reality, the assumptions are not achieved. In case there are district schools A and B that are identical, except that there is one to have a proportion, which is higher, of special education students.

Trying to equalize spending between both districts A and B cannot be optimal.5. Distinguish between foundation grants and guaranteed tax base grants in education finance. Why might foundation grants be more popular in practice? A foundation grant needs to guarantee an aid amount that is minimum, to each district school, while a tax base that is guaranteed and ensures a minimum tax base for every student, via which amounts of grants are computed significantly. Generally, foundation grants lack the flypaper effect, as, relative to a plan of guaranteed tax base, more of the grant money ends up in spending on related local good.