| Course | FIN 400 Public Finance (FIN/400) |
|---|---|
| Week | 5 |
| Paper type | Fiscal federalism analysis paper |
| Length | about 1,045 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Finance |
| Updated | October 2026 |
Free sample paper for FIN 400 Week 5
Who Should Pay for the Schools in Millbrook and Dalton? Fiscal Federalism, Local Choice and State Equalization in One School Finance Dispute
[Student Name]
University of Phoenix
FIN/400: Public Finance
Week 5 Assignment
[Instructor Name]
[Date]
The two districts and the state formula are composites written for a model paper; the theory, program rules and research findings come from the sources listed.
Millbrook and Dalton are composite school districts thirty miles apart in the same state. Millbrook, a suburb with new office parks, has assessed property worth about $1.4 million per student. Dalton, an older mill town, has about $380,000 per student. At the same property tax rate of 1.5 percent, Millbrook raises $21,000 per student and Dalton $5,700. State aid narrows the difference, but Millbrook still spends about $19,500 per student and Dalton $14,200, even though Dalton's residents tax themselves at a higher rate. Dalton's parents have petitioned the legislature for a new formula. The dispute turns on a question fiscal federalism was built to answer: which level of government should pay for which service, and why.
The Case for Local Control
Tiebout (1956) argued that when households can choose among many communities, each offering a package of services and taxes, they reveal their preferences by moving, and local governments compete to supply what residents want. Families who value schools highly can choose districts that spend more. Oates (1999) generalized the idea in his decentralization theorem: when a service mainly benefits local residents and preferences differ from place to place, local provision fitted to each community is more efficient than a uniform national or state level. Local control also brings decisions closer to voters, who can watch how their money is spent.
Why Local Finance Produces Unequal Schools
The same arrangement ties schools to local wealth. A district with a large tax base can fund generous schools at a low rate, while a poor district cannot match that spending even at a high rate. Children do not choose their districts, and education has benefits that spread beyond the district: a better educated workforce raises earnings and tax revenue across the state, and many graduates move away. Those spillovers and the state's interest in equal opportunity give it a reason to fund schools rather than leave them to local taxes alone (Gruber, 2022).
How the State Formula Works Now
The state uses a foundation formula. It sets a foundation amount of $12,000 per student, assumes each district raises a required local share at a tax rate of 1 percent and pays the difference. At 1 percent, Dalton raises $3,800 per student and receives $8,200 in state aid; Millbrook raises $14,000, more than the foundation, and receives no foundation aid. Both districts may tax above 1 percent and keep everything they raise. Millbrook's extra half point raises $7,000 per student and Dalton's raises only $1,900, so the gap returns above the foundation level.
The Federal Layer
Federal aid adds a smaller amount. Title I grants direct money to districts with many low-income students, and Dalton receives about $900 per student. Federal grants for students with disabilities add more to both districts. Federal funds account for under a tenth of school spending nationally, so they cannot close a state's internal gaps on their own.
How Grants Change Behavior
Grants differ in how they change the recipient's choices. A lump-sum grant gives a district more money but does not change the cost of an additional dollar of spending. A matching grant pays part of each additional dollar and so lowers the price of spending, encouraging more of it; Medicaid's federal match, which ranges from 50 percent to more than 75 percent depending on state income, works this way. Theory predicts that a lump-sum grant should affect spending like an equal rise in residents' income, but studies repeatedly find that grants raise spending much more, a pattern called the flypaper effect (Hines & Thaler, 1995). For Dalton, the effect means additional state aid is likely to reach classrooms rather than be returned to taxpayers as tax cuts.
A Better Formula
The state could add a guaranteed tax base tier above the foundation. For each point of tax rate above 1 percent, up to 0.75 points, the state would guarantee every district the yield that a district with $1 million of property per student would raise. Dalton's extra half point would then yield $5,000 per student rather than $1,900, with the state paying the $3,100 difference. Millbrook, above the guaranteed base, would receive nothing from the new tier but keep its local choice. The tier works as a matching grant for poorer districts, rewarding local effort while narrowing the wealth gap. Statewide, the tier would cost an estimated $240 million a year.
Objections From Both Districts
Millbrook's residents may object that the state is using their taxes to fund Dalton's schools, and some will argue that higher state taxes will reduce what they are willing to pay locally. Research on school finance reforms in other states shows that this concern is real: where states capped local spending or recaptured revenue from wealthy districts, some of those districts reduced their own effort. The guaranteed tax base design avoids caps and recapture, so Millbrook keeps every dollar it raises. Dalton's residents may object from the other side, arguing that a matching tier still requires them to raise their own tax rate to receive the aid. That is intended: the tier rewards local effort and keeps a local decision in the formula. To protect the poorest families in Dalton, the state could pair the tier with a property tax credit for low-income homeowners.
Paying for It
The state would need recurring revenue for the new tier, which ties this week to earlier ones on taxation and budgets. Options include a modest increase in the state income tax or capping the share of local revenue wealthy districts can raise above a high threshold, a recapture approach some states use but which provokes resistance.
Judging the Result
The state should track the gap in spending per student between districts in the top and bottom fifths of property wealth, along with outcomes such as graduation rates, for five years after the change.
Conclusion
Fiscal federalism explains both why Millbrook and Dalton fund their own schools and why the state must step in. Local control matches services to preferences, but local wealth and statewide spillovers justify state aid. A guaranteed tax base tier preserves local choice while giving poorer districts a fair return on their tax effort.
References
Gruber, J. (2022). Public finance and public policy (7th ed.). Worth Publishers.
Hines, J. R., Jr., & Thaler, R. H. (1995). Anomalies: The flypaper effect. Journal of Economic Perspectives, 9(4), 217-226. https://doi.org/10.1257/jep.9.4.217
Oates, W. E. (1999). An essay on fiscal federalism. Journal of Economic Literature, 37(3), 1120-1149. https://doi.org/10.1257/jel.37.3.1120
Tiebout, C. M. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416-424. https://doi.org/10.1086/257839
What the FIN 400 Week 5 instructions ask
In FIN 400 Week 5, the prompt typically wants an account of how responsibilities and revenues are divided among levels of government and an evaluation of one shared program. Prompts commonly require the reasons for decentralization, such as matching services to local preferences, and the reasons for central funding, such as spillovers, economies of scale and redistribution. Students may be asked to describe grant types, including categorical, block, matching and general grants, and to discuss how grants change the behavior of the governments that receive them. Typical examples are school finance, Medicaid, transportation or public health. Students should apply the theory to a real program, use current figures and cite sources in APA style.
How this FIN 400 Week 5 example is built
School finance shows every tension in fiscal federalism within one state. The paper opens with two districts, their property wealth and their spending per student. Tiebout's model explains why families sort into districts and why local funding responds to their preferences, and Oates's theorem frames when local provision is better. The paper then shows how reliance on the local property tax ties school quality to local wealth. A section on grants explains foundation formulas, matching aid and federal Title I money, and research on the flypaper effect shows that grants raise spending more than equal increases in local income. The recommendation adjusts the state formula and ends with how to judge the result.
FIN 400 Week 5 grading rubric: where the points go
The grade in this final week typically reflects an accurate account of why functions are assigned to different levels of government and a careful application to one program. Instructors look for correct use of Tiebout sorting, the decentralization theorem and spillovers, an explanation of how grant design changes recipient behavior and figures that compare governments fairly, such as spending per student or tax base per resident. A recommendation that balances local choice against equity, and that names its cost to the state, earns credit. Papers that tie the week back to earlier course topics, such as taxation and budgets, show synthesis. APA references complete the work.
FIN 400 Week 5 help: mistakes to avoid
A frequent weakness in FIN 400 Week 5 is arguing that one level of government should do everything. Explain which features of the service favor local control and which favor state or federal funding. Students also describe grants without saying how they change behavior; a matching grant lowers the price of spending, while a lump-sum grant does not. Compare governments with per-person or per-student figures, not totals. Another misstep is ignoring the tax side; equalization usually requires either higher state taxes or limits on wealthy districts. Name the tradeoff. Close by explaining how the state would know whether the new formula worked, using a measure it already collects each year.
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FIN 400 Week 5 questions, answered
What does FIN 400 Week 5 usually cover?
It usually covers fiscal federalism, the division of spending and taxing among federal, state and local governments, including reasons for decentralization, grant types and how grants change spending.
Where can I find a free FIN 400 Week 5 sample paper?
This page holds a full school finance paper comparing a rich and a poor district under a state formula, with comments in the margin, readable at no cost. Ask for a free first draft on the program your course assigns.
What is the Tiebout model?
A theory that households choose among communities offering different combinations of local services and taxes, so local governments compete for residents and supply services closer to what residents want.
What is the flypaper effect?
The finding that grants from a higher government raise recipient spending more than an equal rise in local income would, as if the money sticks where it lands instead of reaching taxpayers.
What is a matching grant?
A grant that pays a share of each dollar a lower government spends on a program, which lowers the local cost of that program and encourages more spending on it, as Medicaid's federal match does.
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