Working Paper: NBER ID: w2406
Authors: Thomas Romer; Howard Rosenthal; Vincent Munley
Abstract: Allocation of resources in the local public sector involves economic and political forces. Spending for elementary and secondary education is a major area of public expenditure. In many states, the bulk of this spending is subject to referendum. In addition, grants-in-aid from state governments to local school districts form an important component of the district revenues. This paper has two main features. One is the characterization of local spending when the state aid structure is of the closed-end matching grant type. Under this structure, local tax price is endogenous, since the amount of state subsidy depends on the district's spending choice. The other main feature is the linking of spending proposals to referendum outcomes. In this way, our model makes use of voting data to shed light on the extent to which referenda constrain spending. The empirical setting is public school budget referenda in 544 New York school districts for the 1975-76 school year. Our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the grant structure, as well as to the referendum requirement. In addition, large school districts appear to behave more like "budget-maximizers" than do small districts, where proposals appear to be more in line with "median voter" demands.
Keywords: School finance; Budget referenda; Public choice
JEL Codes: H75; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| closed-end matching grants (H81) | local school district spending decisions (H75) |
| local tax price (H71) | spending levels (H59) |
| spending levels (H59) | local tax price (H71) |
| size of school districts (I21) | responsiveness of spending to referendum outcomes (D72) |
| higher proposed budgets (H61) | fewer votes (D72) |
| spending errors (H51) | voting outcomes (D72) |
| agenda-setting behavior of school boards (D72) | spending and voting dynamics (D72) |