Working Paper: NBER ID: w24140
Authors: Matthew Davis; Fernando V. Ferreira
Abstract: Median expenditure per student in U.S. public schools grew 41% in real terms from 1990 to 2009. We propose a new mechanism to explain part of this increase: housing disease, a fiscal externality from local housing markets in which unexpected booms generate extra revenues that schools administrators have incentives to spend, independent of local preferences for provision of public goods. We establish the importance of housing disease by: (i) assembling a novel microdata set containing the universe of housing transactions for a large sample of school districts; and (ii) using the timelines of school district housing booms to disentangle the effects of housing disease from reverse causality and changes in household composition. We estimate housing price elasticities of per-pupil expenditures of 0.16-0.20, which accounts for approximately half of the rise in public school spending. School districts did not boost administrative costs with those additional funds. Instead, they primarily increased spending on instruction and capital projects, suggesting that the cost increase was accompanied by improvements in the quality of school inputs.
Keywords: Housing; Public School Finance; Fiscal Externality
JEL Codes: H0; I0; J0; R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing booms (R31) | school district revenues (H79) |
| school district revenues (H79) | public school expenditures (H52) |
| housing booms (R31) | public school expenditures (H52) |
| public school expenditures (H52) | school quality (I21) |
| housing booms (R31) | pupil-teacher ratios (A21) |
| housing booms (R31) | capital expenditures (G31) |