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Effect of a School Finance Reform on Housing Stock and Residential Segregation: Evidence from Proposal A in Michigan

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  • Joydeep Roy

    (Economic Policy Institute)

Abstract

Local financing of public schools in the U.S. leads to a bundling of two distinct choices - residential choice and school choice - and increases the degree of socioeconomic segregation across school districts. A school finance reform can go a long way in weakening this link. In this paper I study the Michigan school finance reform of 1994 (Proposal A) which resulted in a comprehensive equalization of per pupil expenditures. Using panel data on Michigan K-12 districts and data from the decennial censuses I investigate whether the reform had any significant effects on spatial segregation. I find that Proposal A has been responsible for increases in housing stock and property values in the lowest spending school districts, and for improvements in several socioeconomic indicators, implying a decline is neighborhood sorting. However, there is continued high demand for residence in the highest spending communities, which points to the importance of neighborhood peer effects (‘local’ social capital).

Suggested Citation

  • Joydeep Roy, 2004. "Effect of a School Finance Reform on Housing Stock and Residential Segregation: Evidence from Proposal A in Michigan," Public Economics 0412004, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0412004
    Note: Type of Document - pdf; pages: 44
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    References listed on IDEAS

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    1. Roy Roy, 2004. "Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan," Working Papers 8, Princeton University, Woodrow Wilson School of Public and International Affairs, Education Research Section..
    2. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 577-599.
    3. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-740, May.
    4. Loeb, Susanna, 2001. "Estimating the effects of school finance reform: a framework for a federalist system," Journal of Public Economics, Elsevier, vol. 80(2), pages 225-247, May.
    5. Feldstein, Martin S, 1975. "Wealth Neutrality and Local Choice in Public Education," American Economic Review, American Economic Association, vol. 65(1), pages 75-89, March.
    6. Aaronson, Daniel, 1999. "The Effect of School Finance Reform on Population Heterogeneity," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(1), pages 5-29, March.
    7. Barrow, Lisa, 2002. "School choice through relocation: evidence from the Washington, D.C. area," Journal of Public Economics, Elsevier, vol. 86(2), pages 155-189, November.
    8. 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;National Tax Journal, vol. 45(4), pages 405-419, December.
    9. Benabou, R., 1992. "Heterogeneity, Stratification, and Growth," Working papers 93-4, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. 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.
    11. Thomas Downes, 2003. "School Finance Reform and School Quality: Lessons from Vermont," Discussion Papers Series, Department of Economics, Tufts University 0309, Department of Economics, Tufts University.
    12. Joydeep Roy, 2011. "Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan," Education Finance and Policy, MIT Press, vol. 6(2), pages 137-167, April.
    13. 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.
    14. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416-416.
    15. Raquel Fernandez & Richard Rogerson, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 135-164.
    16. 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.
    17. Dee, Thomas S, 2000. "The Capitalization of Education Finance Reforms," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 185-214, April.
    18. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-133, February.
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    Cited by:

    1. Maria Marta Ferreyra, 2009. "An Empirical Framework for Large-Scale Policy Analysis, with an Application to School Finance Reform in Michigan," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 147-180, February.

    More about this item

    Keywords

    School finance reform; spatial segregation; Tiebout sorting; peer effects.;

    JEL classification:

    • I2 - Health, Education, and Welfare - - Education
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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