Racial Segregation and Public School Expenditure

This paper explores the effect of racial segregation on public school expenditure in US metropolitan areas and school districts. Our starting point is the literature that relates public good provision to the degree of racial fragmentation in the community. We argue that looking at fragmentation alone may be misleading and that the geographic distribution of different racial groups needs to be taken into account. Greater segregation is associated with more homogeneity in some subareas and more heterogeneity in others, and this matters if decisions on spending are taken at aggregation levels lower than the MSA. For given fragmentation, the extent of segregation conveys information on households? possibility to sort into relatively more or less homogeneous jurisdictions. We account for the potential endogeneity of racial segregation and find that the latter has a positive impact on average public school expenditure both at the MSA and at the district level. At the same time, increased segregation leads to more inequality in spending across districts of the same MSA, thus worsening the relative position of poorer districts.