Foundation Grants and Guaranteed Tax Base Grants in Education Finance Essay - 5

Foundation Grants and Guaranteed Tax Base Grants in Education Finance - Essay Example For the flypaper effect, it can be defined as a result that comes up when a dollar of grants-in-aid 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. Whether a property tax is deemed regressive depends on the way someone views the tax. According to Zodrow (2001) â€Å"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 â€Å"benefit view† of property tax has a conclusion that it is simply a payment for public services received locally.