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Education Finance Reform and Investment in Human Capital: Lessons from California

  • Raquel Fernandez
  • Richard Rogerson

This paper examines the effect of different education financing systems on the level and distribution of resources devoted to public education. We focus on California, which in the 1970's moved from a system of mixed local and state financing to one of effectively pure state finance and subsequently saw its funding of public education fall between ten and fifteen percent relative to the rest of the US. We show that a simple political economy model of public finance can account for the bulk of this drop. We find that while the distribution of spending became more equal, this was mainly at the cost of a large reduction in spending in the wealthier communities with little increase for the poorer districts. Our model implies that there is no simple trade-off between equity and resources; we show that if California had moved to the opposite extreme and abolished state aid altogether, funding for public education would also have dropped by almost ten percent.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5369.

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Date of creation: Nov 1995
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Publication status: published as Journal of Public Economics, Vol. 74 (1999): 327-350.
Handle: RePEc:nbr:nberwo:5369
Note: IFM PE
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  1. 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.
  2. Robert L. Manwaring & Steven M. Sheffrin, . "Litigation, School Finance Reform, And Aggregate Educational Spending," Department of Economics 96-05, California Davis - Department of Economics.
  3. Raquel Fernandez & Richard Rogerson, 1994. "On the political economy of education subsidies," Staff Report 185, Federal Reserve Bank of Minneapolis.
  4. Sam Peltzman, 1992. "The Political Economy of the Decline of American Public Education," University of Chicago - George G. Stigler Center for Study of Economy and State 78, Chicago - Center for Study of Economy and State.
  5. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
  6. Downes, Thomas A. & Schoeman, David, 1998. "School Finance Reform and Private School Enrollment: Evidence from California," Journal of Urban Economics, Elsevier, vol. 43(3), pages 418-443, May.
  7. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  8. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
  10. 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.
  11. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  12. Caroline Minter Hoxby, 1994. "Do Private Schools Provide Competition for Public Schools?," NBER Working Papers 4978, National Bureau of Economic Research, Inc.
  13. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  14. Gerhard Glomm & B. Ravikumar, 1998. "Opting out of publicly provided services: A majority voting result," Social Choice and Welfare, Springer, vol. 15(2), pages 187-199.
  15. Downes, Thomas A., 1992. "Evaluating the Impact of School Finance Reform on the Provision of Public Education: The California Case," National Tax Journal, National Tax Association, vol. 45(4), pages 405-19, December.
  16. 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.
  17. Bénabou, Roland, 1993. "Heterogeneity, Stratification and Growth," CEPR Discussion Papers 815, C.E.P.R. Discussion Papers.
  18. 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.
  19. 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.
  20. James Heckman & Anne Layne-Farrar & Petra Todd, 1995. "Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship," NBER Working Papers 5274, National Bureau of Economic Research, Inc.
  21. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
  22. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 135-64, February.
  23. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  24. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  25. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
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