Working Paper: CEPR ID: DP15666
Authors: Christopher Biolsi; Steven G. Craig; Amrita Dhar; Bent E. Sørensen
Abstract: This paper takes a novel time series perspective on K-12 school spending. About half of school spending is financed by state government aid to local districts. Because state aid is generally income conditioned, with low-income districts receiving more aid, state aid acts as a mechanism for risk sharing between school districts. We show that temporal inequality, due to state and local business cycles, is prevalent across the income distribution. We estimate a model of local revenue and state aid, and its allocation across districts, and use the parameters to simulate impulse response functions. We find that state aid provides risk sharing for local shocks, although slow speed of adjustment results in temporal inequality. There is little risk sharing for statewide income shocks, and the risk from such shocks to school spending is more severe in low income districts because of their greater reliance on state aid.
Keywords: No keywords provided
JEL Codes: I22; H72; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state aid (F35) | local revenue (H71) |
| local income shocks (J69) | school spending (H52) |
| statewide income shocks (H79) | school spending (H52) |
| state aid (F35) | school spending (H52) |
| local revenue (H71) | school spending (H52) |
| statewide income shocks (H79) | local revenue (H71) |
| local income shocks (J69) | state aid (F35) |