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Housing markets and residential segregation: impacts of the Michigan school finance reform on inter- and intra-district sorting

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  • Rajashri Chakrabarti
  • Joydeep Roy

Abstract

Local financing of public schools in the United States leads to a bundling of two distinct choices – residential choice and school choice – and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per-pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A was responsible for increases in the value of housing stock in the lowest-spending school districts, and for improvements in several socioeconomic indicators in these districts, implying a decline in neighborhood sorting. We also find that the reform affected dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest-spending school districts, while decreasing the same in the highest-spending districts. However, there is continued high demand for residence in the highest-spending communities, suggesting the importance of neighborhood peer effects ("local" social capital) and implying that even a comprehensive government aid program can fail to make a large impact on residential segregation.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 565.

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Date of creation: 2012
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Handle: RePEc:fip:fednsr:565

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Related research

Keywords: Segregation in education ; Public schools ; Local finance ; School choice ; Social choice;

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References

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  1. Downes, Thomas A. & Zabel, Jeffrey E., 2002. "The impact of school characteristics on house prices: Chicago 1987-1991," Journal of Urban Economics, Elsevier, vol. 52(1), pages 1-25, July.
  2. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation Of Elementary Education," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 577-599, May.
  3. Dee, Thomas S, 2000. "The Capitalization of Education Finance Reforms," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 185-214, April.
  4. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 135-64, February.
  5. Lisa Barrow, 1999. "School choice through relocation: evidence from the Washington, D.C. area," Working Paper Series WP-99-7, Federal Reserve Bank of Chicago.
  6. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
  7. Rajashri Chakrabarti & Joydeep Roy, 2010. "Do charter schools crowd out private school enrollment? Evidence from Michigan," Staff Reports 472, Federal Reserve Bank of New York.
  8. Randall W. Eberts & Kevin Hollenbeck, 2001. "An Examination of Student Achievement in Michigan Charter Schools," Upjohn Working Papers and Journal Articles 01-68, W.E. Upjohn Institute for Employment Research.
  9. Daniel Aaronson, 1998. "The effect of school finance reform on population heterogeneity," Working Paper Series WP-98-11, Federal Reserve Bank of Chicago.
  10. Maria Marta Ferreyra, 2009. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 147-80, February.
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Cited by:
  1. Rajashri Chakrabarti & Sarah Sutherland, 2013. "New Jersey’s Abbott districts: education finances during the Great Recession," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 19(Jun).

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