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The Effect of Mandated State Education Spending on Total Local Resources (new title: The effect of state education finance reform on total local resources)

  • Katherine Baicker
  • Nora Gordon

Many states are under court-order to reduce local disparities in education spending. While a substantial body of literature suggests that these orders and the resulting school finance equalizations have increased the level and progressivity of state education spending, there is little evidence on the broader effects of such measures on the change in total resources available not only for schools, but for other local government programs as well. When states spend more on education, both state and local budget constraints change. We find that while mandated school finance equalizations increase both the level and progressivity of state spending on education, states finance the required increase in education spending in part by reducing their aid to localities for other programs. Local governments, in turn, respond to the increases in state taxation and spending by reducing both their own revenue-raising and their own spending on education and on other programs. Thus, while state education aid does increase total spending on education, it does so at the expense of drawing resources away from spending on programs like public welfare, highways, and hospitals. These findings provide insight into the effectiveness of using earmarked funds to achieve redistribution.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1275.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1275
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  1. Card, David & Payne, A. Abigail, 2002. "School finance reform, the distribution of school spending, and the distribution of student test scores," Journal of Public Economics, Elsevier, vol. 83(1), pages 49-82, January.
  2. Figlio, David N. & Husted, Thomas A. & Kenny, Lawrence W., 2004. "Political economy of the inequality in school spending," Journal of Urban Economics, Elsevier, vol. 55(2), pages 338-349, March.
  3. Daniel Aaronson, 1998. "The effect of school finance reform on population heterogeneity," Working Paper Series WP-98-11, Federal Reserve Bank of Chicago.
  4. Baicker, Katherine, 2001. "Government decision-making and the incidence of federal mandates," Journal of Public Economics, Elsevier, vol. 82(2), pages 147-194, November.
  5. Raquel Fernandez & Richard Rogerson, 1995. "Education Finance Reform and Investment in Human Capital: Lessons from California," NBER Working Papers 5369, National Bureau of Economic Research, Inc.
  6. Caroline M. Hoxby, 1998. "All School Finance Equalizations Are Not Created Equal," NBER Working Papers 6792, National Bureau of Economic Research, Inc.
  7. Gordon, Nora, 2004. "Do federal grants boost school spending? Evidence from Title I," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1771-1792, August.
  8. Fischel, William A., 1989. "Did Serrano Cause Proposition 13?," National Tax Journal, National Tax Association, vol. 42(4), pages 465-73, 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. Gamkhar, Shama & Oates, Wallace E., 1996. "Asymmetries in the Response to Increases and Decreases in Intergovernmental Grants: Some Empirical Findings," National Tax Journal, National Tax Association, vol. 49(4), pages 501-12, December.
  11. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  12. Melissa Clark, 2003. "Education Reform Redistribution and Student Achievement Evidence from the Kentucky Education Reform Act," Mathematica Policy Research Reports 80c79eb4bd384723b5e7da0c9, Mathematica Policy Research.
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