Litigation, School Finance Reform, And Aggregate Educational Spending

The United States has traditionally financed elementary and secondary education through property taxation. In the past two decades, litigation in many states has triggered educational reform movements designed to reduce the inequalities in educational expenditures across districts inherent in a property tax financed system. While these movements have been successful in reducing inequalities, there are some who argue that this movement has had adverse affects on the level of educational spending. If, indeed, this is the case, then there would be trade-offs between reductions in inequality and the level of investment in education. In this paper, we use a panel data set across all the states from 1970-1990 to examine the role of litigation and educational finance reform in determining the level of education funding in a flexible, dynamic setting. This allows us to analyze the determinants of educational spending and to assess the differential impacts of litigation and reform movements across states. The dynamics are driven by four effects - an income effect, a state control effect, a state budget effect, and a base effect. An important finding of our work is that litigation and reform have differential effects across the states, in some cases leading to increases while in other cases decreases in spending. We supplement our empirical research with a closer examination of several case studies.