Reflect on the differences between federal, state, and local government budgets.

Why must state and local governments have balanced budgets?

How would you describe the differences between the federal deficit and the national debt?

What is a lump sum tax?

What are the desirable and undesirable aspects of using a lump sum to pay to finance government expenditures?

Explain why lump sum taxes will not cause any losses of efficiency.

Under what circumstances can borrowing by state and local governments contribute to improved resource allocation?