Housing Markets and Residential Segregation: Impacts of the Michigan School Finance Reform on Inter- and Intra-District Sorting

44 Pages Posted: 8 Aug 2012

See all articles by Rajashri Chakrabarti

Rajashri Chakrabarti

Federal Reserve Bank of New York

Joydeep Roy

Economic Policy Institute; Georgetown University

Date Written: August 8, 2012

Abstract

Local financing of public schools in the United States leads to a bundling of two distinct choices – residential choice and school choice – and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per-pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A was responsible for increases in the value of housing stock in the lowest-spending school districts, and for improvements in several socioeconomic indicators in these districts, implying a decline in neighborhood sorting. We also find that the reform affected dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest-spending school districts, while decreasing the same in the highest-spending districts. However, there is continued high demand for residence in the highest-spending communities, suggesting the importance of neighborhood peer effects ("local" social capital) and implying that even a comprehensive government aid program can fail to make a large impact on residential segregation.

Keywords: spatial segregation, school finance reform, tiebout sorting, peer effects

JEL Classification: H4, I2, R2

Suggested Citation

Chakrabarti, Rajashri and Roy, Joydeep, Housing Markets and Residential Segregation: Impacts of the Michigan School Finance Reform on Inter- and Intra-District Sorting (August 8, 2012). FRB of New York Staff Report No. 565. Available at SSRN: https://ssrn.com/abstract=2126663 or http://dx.doi.org/10.2139/ssrn.2126663

Rajashri Chakrabarti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://nyfedeconomists.org/chakrabarti

Joydeep Roy

Economic Policy Institute ( email )

1660 L Street NW, Suite 1200
Washington, DC 20036
United States
617 832 5626 (Phone)
703 465 0992 (Fax)

Georgetown University ( email )

Washington, DC 20057
United States

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