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Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan

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  • Caroline M. Hoxby
  • Ilyana Kuziemko

Abstract

School finance schemes control the allocation of $370 billion a year in the United States, but their economics are poorly understood. We examine an illuminating example: Texas' Robin Hood' scheme, which was enacted in 1994, allocates about $30 billion a year, and is currently collapsing and likely to be abandoned. We show that the collapse was predictable. Robin Hood's design causes substantial negative capitalization, shrinking its own tax base. It relies only slightly on relatively efficient (pseudo lump sum) redistibution and heavily on high marginal tax rates. Although Robin Hood reduced the spending gap between Texas' property-poor and property-rich districts by $500 per pupil, it destroyed about $27,000 per pupil in property wealth. The magnitude of this loss is important: if the state had efficiently confiscated the same wealth and invested it, it would generate sufficient annual income to make all Texas schools spend at a high leval. The Robin Hood scheme is stringent but not bizarre: other states' systdms share its features to some degree. We provide estimates of the effects of school finance system parameters, which policy makers could use to design systems that are more efficient and stable.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10722.

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Date of creation: Sep 2004
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Handle: RePEc:nbr:nberwo:10722

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  1. Hoxby, Caroline M., 1999. "The productivity of schools and other local public goods producers," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 1-30, October.
  2. Julie Berry Cullen, 1999. "The Impact of Fiscal Incentives on Student Disability Rates," NBER Working Papers, National Bureau of Economic Research, Inc 7173, National Bureau of Economic Research, Inc.
  3. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, Elsevier, vol. 24(3), pages 281-308, August.
  4. Caroline M. Hoxby, 2001. "All School Finance Equalizations Are Not Created Equal," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1189-1231, November.
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Cited by:
  1. Nada Wasi & Michelle J. White, 2005. "Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13," NBER Working Papers, National Bureau of Economic Research, Inc 11108, National Bureau of Economic Research, Inc.
  2. Shan, Hui, 2010. "Property taxes and elderly mobility," Journal of Urban Economics, Elsevier, Elsevier, vol. 67(2), pages 194-205, March.
  3. George R. Zodrow, 2008. "The Property Tax Incidence Debate and the Mix of State and Local Finance of Local Public Expenditures," Working Papers, Oxford University Centre for Business Taxation 0801, Oxford University Centre for Business Taxation.
  4. Michael Podgursky & Matthew G. Springer, 2006. "K-12 public school finance in Missouri: an overview," Regional Economic Development, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Mar, pages 31-50.
  5. Thomas J. Nechyba, 2006. "Alternative education finance strategies," Regional Economic Development, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Mar, pages 7-27.
  6. Byron F. Lutz, 2006. "Taxation with representation: intergovernmental grants in a plebiscite democracy," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-06, Board of Governors of the Federal Reserve System (U.S.).
  7. Turner, Nick, 2010. "Who Benefits From Student Aid? The Economic Incidence of Tax-Based Federal Student Aid," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt7g0888mj, Department of Economics, UC San Diego.

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