Working Paper: NBER ID: w12960
Authors: Eric A. Hanushek; Kuzey Yilmaz
Abstract: An important element in considering school finance policies is that households are not passive. Instead they respond to policies with a combination of modified residential choice and political choice of tax levels. The highly stylized decision models of most existing analyses, however, lead to conerns about the policy evaluations. In our general equilibrium model of residential location and community choice, households base optimizing decisions on commuting costs, school quality, and land rents. With both centralized and decentralized employment, the resulting equilibrium has heterogeneous communities in terms of income and tastes for schools. This model is used to analyze a series of conventional policy experiments, including school district consolidation, district power utilization, and different equalization devices. The important conclusion is that welfare falls for all families with the restrictions in choice that are implied by these approaches.
Keywords: school finance; residential choice; community dynamics; educational equity
JEL Codes: H4; I2; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| residential choice (R21) | school quality (I21) |
| school quality (I21) | housing prices (R31) |
| school quality (I21) | tax rates (H29) |
| school district consolidation (H79) | household welfare (I38) |
| district power equalization policies (H79) | educational outcomes (I26) |
| residential choice (R21) | heterogeneous distribution of communities (D39) |