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School Finance Reform: Assessing General Equilibrium Effects

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  • Dennis N. Epple
  • Maria Marta Ferreyra

Abstract

In 1994 the state of Michigan implemented one of the most comprehensive school finance reforms undertaken to date in any of the states. Understanding the effects of the reform is thus of value in informing other potential reform initiatives. In addition, the reform and associated changes in the economic environment provide an opportunity to assess whether a simple general equilibrium model can be of value in framing the study of such reform initiatives. In this paper, we present and use such a model to derive predictions about the effects of the reform on housing prices and neighborhood demographic compositions. Broadly, our analysis implies that the effects of the reform and changes in the economic environment are likely to have been reflected primarily in housing prices and only modestly on neighborhood demographics. We find that evidence for the Detroit metropolitan area from the decade encompassing the reform is largely consistent with the predictions of the model.

Suggested Citation

  • Dennis N. Epple & Maria Marta Ferreyra, 2007. "School Finance Reform: Assessing General Equilibrium Effects," NBER Working Papers 13524, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13524
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    1. Thomas J. Kane & Douglas O. Staiger, 2002. "The Promise and Pitfalls of Using Imprecise School Accountability Measures," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 91-114, Fall.
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    15. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
    16. Loeb, Susanna, 2001. "Estimating the effects of school finance reform: a framework for a federalist system," Journal of Public Economics, Elsevier, vol. 80(2), pages 225-247, May.
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    Cited by:

    1. Nicolai V. Kuminoff & V. Kerry Smith & Christopher Timmins, 2010. "The New Economics of Equilibrium Sorting and its Transformational Role for Policy Evaluation," NBER Working Papers 16349, National Bureau of Economic Research, Inc.
    2. Rosenthal, Stuart S. & Ross, Stephen L., 2015. "Change and Persistence in the Economic Status of Neighborhoods and Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1047-1120, Elsevier.
    3. Barbara Biasi, 2019. "School Finance Equalization Increases Intergenerational Mobility: Evidence from a Simulated-Instruments Approach," NBER Working Papers 25600, National Bureau of Economic Research, Inc.
    4. Brülhart, Marius & Bucovetsky, Sam & Schmidheiny, Kurt, 2015. "Taxes in Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1123-1196, Elsevier.
    5. Eric Brunner & Joshua Hyman & Andrew Ju, 2020. "School Finance Reforms, Teachers' Unions, and the Allocation of School Resources," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 473-489, July.
    6. Joshua Hyman, 2017. "Does Money Matter in the Long Run? Effects of School Spending on Educational Attainment," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 256-280, November.
    7. Chakrabarti, Rajashri & Roy, Joydeep, 2015. "Housing markets and residential segregation: Impacts of the Michigan school finance reform on inter- and intra-district sorting," Journal of Public Economics, Elsevier, vol. 122(C), pages 110-132.
    8. Jeffrey P. Cohen & Cletus C. Coughlin & Jonas C. Crews & Stephen L. Ross, 2020. "The Closing of a Major Airport: Immediate and Longer-Term Housing Market Effects," Working Papers 2020-001, Federal Reserve Bank of St. Louis, revised 19 Jan 2021.
    9. Liouaeddine, Mariem, 2016. "Démocratisation de l’éducation et inégalités scolaires au Maroc [Democratization of education and educational inequality in Morocco]," MPRA Paper 69256, University Library of Munich, Germany.
    10. Tomoaki Kotera & Ananth Seshadri, 2017. "Educational Policy and Intergenerational Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 25, pages 187-207, April.
    11. Brunner, Eric J. & Cho, Sung-Woo & Reback, Randall, 2012. "Mobility, housing markets, and schools: Estimating the effects of inter-district choice programs," Journal of Public Economics, Elsevier, vol. 96(7), pages 604-614.
    12. Chakrabarti, Rajashri & Roy, Joydeep, 2016. "Do charter schools crowd out private school enrollment? Evidence from Michigan," Journal of Urban Economics, Elsevier, vol. 91(C), pages 88-103.
    13. C. Kirabo Jackson & Rucker Johnson & Claudia Persico, 2014. "The Effect of School Finance Reforms on the Distribution of Spending, Academic Achievement, and Adult Outcomes," NBER Working Papers 20118, National Bureau of Economic Research, Inc.
    14. Iwona Kowalska, 2016. "Sources Of Financing Knowledge-Based Economy: The Case Of Formal, Non-Formal And Informal Education In Poland," Oeconomia Copernicana, Institute of Economic Research, vol. 7(1), pages 75-90, March.
    15. Il Hwan Chung & William Duncombe & John Yinger, 2018. "The Impact of State Aid Reform on Property Values: A Case Study of Maryland's Bridge to Excellence in Public Schools Act," Education Finance and Policy, MIT Press, vol. 13(3), pages 369-394, Summer.
    16. Amy Binner & Brett Day, 2018. "How Property Markets Determine Welfare Outcomes: An Equilibrium Sorting Model Analysis of Local Environmental Interventions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 733-761, April.
    17. Jeffrey P. Cohen & Cletus C. Coughlin & Jonas Crews & Stephen L. Ross, 2023. "Longer term housing market effects of a major US airport closure," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(4), pages 990-1010, July.
    18. Johnson, Erik & Walsh, Randall, 2013. "The effect of property taxes on vacation home growth rates: Evidence from Michigan," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 740-750.
    19. Yeşilırmak, Muharrem, 2016. "A quantitative analysis of Turkish Private Education Reform," European Journal of Political Economy, Elsevier, vol. 45(C), pages 76-88.
    20. 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 147-180, February.
    21. Maria Marta Ferreyra, 2008. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," 2008 Meeting Papers 609, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid

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