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All School Finance Equalizations Are Not Created Equal

  • Caroline M. Hoxby

Public school finance equalization programs can be characterized by the change they impose on the tax price of an additional dollar of local school spending. I calculate the tax price of spending for each school district in the United States for 1972, 1982, and 1992. I find that using the actual tax prices (rather than treating school finance equalizations as events) resolves apparently conflicting evidence about the effects of equalizations on per-pupil spending. Depending on whether they impose tax prices greater than or less than one, school finance equalizations either enjoy increased spending under most equalization schemes, but they actually lose spending under the strongest schemes such as those that exist in California and New Mexico. More importantly, regardless of whether an equalization levels down or up, it should be understood as a tax system on districts' spending. I show that school finance equalization schemes have properties that are generally considered undesirable: they raise revenue on a base that is itself a function of the school finance system and they assign tax prices so that people with a high demand for education are penalized relative to otherwise identical people with the same income. I discuss some simple, familiar schemes that do not have these undesirable properties, yet can achieve similar redistribution.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6792.

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Date of creation: Nov 1998
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Publication status: published as as "How Much Does School Spending Depend On Family Income? The Historical Origins Of The Current School Finance Dilemma," American Economic Review, Vol. 88, no. 2 (May 1998): 309-314
Handle: RePEc:nbr:nberwo:6792
Note: PE
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  1. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December.
  2. David Card & A. Abigail Payne, 1998. "School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores," NBER Working Papers 6766, National Bureau of Economic Research, Inc.
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  5. Robert L. Manwaring & Steven M. Sheffrin, . "Litigation, School Finance Reform, And Aggregate Educational Spending," Department of Economics 96-05, California Davis - Department of Economics.
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  7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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  9. 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.
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