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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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  • Chakrabarti, Rajashri
  • Roy, Joydeep

Abstract

Local financing of public schools in the U.S. 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 led to a decline in neighborhood sorting within education markets, as measured by changes in the value of housing stock and several socioeconomic indicators. We also find that the reform affected the 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 a continued high demand for residence in the highest spending communities. These findings are robust to various alternative definitions of “education market”, and survive several sensitivity checks. These spatial segregation patterns are not replicated in neighboring Ohio that did not face similar school finance equalization.

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  • 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.
    • Handle: RePEc:eee:pubeco:v:122:y:2015:i:c:p:110-132
    DOI: 10.1016/j.jpubeco.2014.08.007
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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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).
    5. Josh B. McGee, 2023. "Yes, money matters, but the details can make all the difference," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(4), pages 1125-1132, September.
    6. Zhang, Muyang & Chen, Jie, 2018. "Unequal school enrollment rights, rent yields gap, and increased inequality: The case of Shanghai," China Economic Review, Elsevier, vol. 49(C), pages 229-240.
    7. Biasi, Barbara & Lafortune, Julien & Schönholzer, David, 2024. "What Works and for Whom? Effectiveness and Efficiency of School Capital Investments across the U.S," IZA Discussion Papers 16713, Institute of Labor Economics (IZA).
    8. 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.
    9. Barbara Biasi & Julien Lafortune & David Schönholzer, 2024. "What Works and for Whom? Effectiveness and Efficiency of School Capital Investments across the U.S," CESifo Working Paper Series 10884, CESifo.
    10. Rajashri Chakrabarti & Joydeep Roy, 2017. "Effect of constraints on Tiebout competition: evidence from a school finance reform," Regional Studies, Taylor & Francis Journals, vol. 51(5), pages 765-785, May.
    11. 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.
    12. Kreisman, Daniel & Steinberg, Matthew P., 2019. "The effect of increased funding on student achievement: Evidence from Texas's small district adjustment," Journal of Public Economics, Elsevier, vol. 176(C), pages 118-141.
    13. 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.
    14. Ulrich B. Morawetz & H. Allen Klaiber, 2022. "Does housing policy impact income sorting near urban amenities? Evidence from Vienna, Austria," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(2), pages 411-454, October.

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    More about this item

    Keywords

    Spatial segregation; School finance reform; Tiebout sorting; Peer effects;
    All these keywords.

    JEL classification:

    • H4 - Public Economics - - Publicly Provided Goods
    • I2 - Health, Education, and Welfare - - Education
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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