IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/7111.html
   My bibliography  Save this paper

Equity and Resources: An Analysis of Education Finance Systems

Author

Listed:
  • Raquel Fernandez
  • Richard Rogerson

Abstract

Over the last few decades many US states have made large changes to their systems of financing K-12 education with the explicit objective of providing more equitable educational opportunities. There has been relatively little accompanying analysis, however, examining how these changes might affect the total sum of resources dedicated to education and whether indeed increased equality is a likely outcome. We analyze five different education finance systems: local, State, foundation, power equalizing with recapture (PER) and power equalizing without recapture (PEN). We find that finance systems can have very large effects on both resources devoted to education and equity. Our calibration suggests that total spending on education may differ by as much as 25% across systems. The trade-off between equity and resources, however, is not monotone. Although spending in a local system is typically greater than that in either the State system or PER, total spending is typically highest for the foundation and PEN systems, both of which reduce inequality of educational resources substantially relative to a local system. We also rank systems in welfare terms by carrying out an expected utility calculation. We find that PER consistently ranks best, though it provides fewer resources to education than the foundation and PEN systems, and falls well short of the state system in terms of equity. Additionally, we find that the PER system is remarkably popular among these alternative finance systems--we prove analytically that for an important subset of preferences PER will win in majority voting comparisons with each of the other systems.

Suggested Citation

  • Raquel Fernandez & Richard Rogerson, 1999. "Equity and Resources: An Analysis of Education Finance Systems," NBER Working Papers 7111, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7111
    Note: PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w7111.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bergstrom, Theodore C & Rubinfeld, Daniel L & Shapiro, Perry, 1982. "Micro-Based Estimates of Demand Functions for Local School Expenditures," Econometrica, Econometric Society, vol. 50(5), pages 1183-1205, September.
    2. Claudia Goldin, 1999. "Egalitarianism and the Returns to Education during the Great Transformation of American Education," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 65-94, December.
    3. David Card & A. Abigail Payne, 1997. "School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores," Working Papers 766, Princeton University, Department of Economics, Industrial Relations Section..
    4. Fernández, Raquel & Rogerson, Richard, 1999. "Education finance reform and investment in human capital: lessons from California," Journal of Public Economics, Elsevier, vol. 74(3), pages 327-350, December.
    5. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    6. Caroline M. Hoxby, 2001. "All School Finance Equalizations are Not Created Equal," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1189-1231.
    7. Robert Manwaring & Steven Sheffrin, 1997. "Litigation, School Finance Reform, and Aggregate Educational Spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 4(2), pages 107-127, May.
    8. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
    9. Murray, Sheila E & Evans, William N & Schwab, Robert M, 1998. "Education-Finance Reform and the Distribution of Education Resources," American Economic Review, American Economic Association, vol. 88(4), pages 789-812, September.
    10. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-834, August.
    11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    12. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    13. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 619-652.
    14. Durlauf, Steven N, 1996. "A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
    15. 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 110-133, February.
    16. Nechyba, Thomas, 1996. "A computable general equilibrium model of intergovernmental aid," Journal of Public Economics, Elsevier, vol. 62(3), pages 363-397, November.
    17. William N. Evans & Sheila E. Murray & Robert M. Schwab, 1997. "Schoolhouses, courthouses, and statehouses after Serrano," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 10-31.
    18. Silva, Fabio & Sonstelie, Jon, 1995. "Did Serrano Cause a Decline in School Spending," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(2), pages 199-215, June.
    19. 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.
    20. Westhoff, Frank, 1977. "Existence of equilibria in economies with a local public good," Journal of Economic Theory, Elsevier, vol. 14(1), pages 84-112, February.
    21. Silva, Fabio & Sonstelie, Jon, 1995. "Did Serrano Cause a Decline in School Spending," National Tax Journal, National Tax Association, vol. 48(2), pages 199-215, June.
    22. Elizabeth M. Caucutt, 2002. "Educational Vouchers When There Are Peer Group Effects--Size Matters," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 195-222, February.
    23. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernández, Raquel, 2001. "Sorting, Education and Inequality," CEPR Discussion Papers 3020, C.E.P.R. Discussion Papers.
    2. Raquel Fernandez, 2001. "Sorting, Education and Inequality," NBER Working Papers 8101, National Bureau of Economic Research, Inc.
    3. Dennis N. Epple & Richard Romano, 2003. "Neighborhood Schools, Choice, and the Distribution of Educational Benefits," NBER Chapters, in: The Economics of School Choice, pages 227-286, National Bureau of Economic Research, Inc.
    4. Eric J. Brunner & Jon Sonstelie, 2006. "California's School Finance Reform: An Experiment in Fiscal Federalism," Working papers 2006-09, University of Connecticut, Department of Economics.
    5. Aaronson, Daniel, 1999. "The Effect of School Finance Reform on Population Heterogeneity," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(1), pages 5-29, March.
    6. Coen-Pirani, Daniele, 2011. "Immigration and spending on public education: California, 1970–2000," Journal of Public Economics, Elsevier, vol. 95(11), pages 1386-1396.
    7. Coen-Pirani, Daniele, 2015. "Human capital accumulation in a federation," European Economic Review, Elsevier, vol. 76(C), pages 104-124.
    8. Caroline M. Hoxby, 2001. "All School Finance Equalizations are Not Created Equal," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1189-1231.
    9. Thomas J. Nechyba, 2003. "Centralization, Fiscal Federalism, and Private School Attendance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 179-204, February.
    10. Fernández, Raquel & Rogerson, Richard, 1999. "Education finance reform and investment in human capital: lessons from California," Journal of Public Economics, Elsevier, vol. 74(3), pages 327-350, December.
    11. 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.
    12. Thomas Downes, 2003. "School Finance Reform and School Quality: Lessons from Vermont," Discussion Papers Series, Department of Economics, Tufts University 0309, Department of Economics, Tufts University.
    13. Raquel Fernandez & Richard Rogerson, 1997. "Education finance reform: A dynamic perspective," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 67-84.
    14. Raquel Fernandez & Richard Rogerson, 2003. "School Vouchers as a Redistributive Device. An Analysis of Three Alternative Systems," NBER Chapters, in: The Economics of School Choice, pages 195-226, National Bureau of Economic Research, Inc.
    15. James Alm & Robert D. Buschman & David L. Sjoquist, 0. "Citizen "Trust" as an Explanation of State Education Funding to Local School Districts," Publius: The Journal of Federalism, CSF Associates Inc., vol. 41(4), pages 636-661.
    16. Ahlin, Åsa & Mörk, Eva, 2008. "Effects of decentralization on school resources," Economics of Education Review, Elsevier, vol. 27(3), pages 276-284, June.
    17. Thomas A. Downes & David N. Figlio, 1999. "Economic inequality and the provision of schooling," Economic Policy Review, Federal Reserve Bank of New York, vol. 5(Sep), pages 99-110.
    18. Mörk, Eva & Ahlin, Åsa, 2007. "Effects of decentralization on school resources: Sweden 1989-2002," Working Paper Series 2007:9, Uppsala University, Department of Economics.
    19. Lars-Erik Borge, 2006. "Centralized or decentralized financing of local governments? Consequences for efficiency and inequality of service provision," Working Paper Series 7806, Department of Economics, Norwegian University of Science and Technology.
    20. Barrow, Lisa & Rouse, Cecilia Elena, 2004. "Using market valuation to assess public school spending," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1747-1769, August.

    More about this item

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • I2 - Health, Education, and Welfare - - Education

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.