Working Paper: NBER ID: w4883
Authors: Raquel Fernandez; Richard Rogerson
Abstract: Many states have or are considering implementing school finance reforms aimed at lessening inequality in the provision of public education across communities. These reforms will tend to have complicated aggregate effects on income distribution, intergenerational income mobility, and welfare. In order to analyze the potential effects of such reforms, this paper constructs a dynamic general equilibrium model of public education provision, calibrates it using US data, and examines the quantitative effects of a major school finance reform. The policy reform examined is a change from a system of pure local finance to one in which all funding is done at the federal level and expenditures per student are equal across communities. We find that this policy increases average income and total spending on education as a fraction of income. Moreover, there are large welfare gains associated with this policy; steady-state welfare increases by 3.2% of steady-state income.
Keywords: public education; income distribution; education finance reform; welfare gains
JEL Codes: I22; H75
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local to federal financing of education (I22) | increase in average income (E25) |
| local to federal financing of education (I22) | increase in educational spending (H52) |
| increase in educational spending (H52) | increase in average income (E25) |
| local to federal financing of education (I22) | significant welfare gains (D69) |
| increase in educational quality (I24) | long-term income prospects (J17) |