There Are Three Different Models for Organizing Relations Between a Central

question 69

Essay

There are three different models for organizing relations between a central government and local or subdivisional governments. Define all three models and list advantages of each model.

---

Definitions:

Involuntary Bankruptcy

A legal process initiated by creditors seeking to recover debts from a debtor who has stopped making payments.

M&M Proposition II

A theory in corporate finance that suggests a company's cost of equity capital is a linear function of its capital structure, under a no-tax scenario.

Interest Tax Shield

The savings in income tax that a company achieves through deducting its interest expense from its taxable income.