The Capitalization of Education Finance Reforms

The education finance reforms encouraged by state court rulings over the past 25 years have led to increased state aid and educational spending in poorer school districts. This empirical study addresses whether these new resources were capitalized into the housing values and residential rents within those districts. Estimations based on district-level census data indicate that the new educational expenditures generated by the court mandates substantially increased median housing values and residential rents. This Tiebout response implies that court-mandated finance reforms increased the perceived quality of the poorer school districts in reform states. However, the existence and magnitude of this response also implies that these reforms had unintended distributional consequences. For example, these results indicate that for some the redistributive impact of education finance reform may have been sharply attenuated by the increased cost of residing in the districts that received new educational resources. Copyright 2000 by the University of Chicago.