School Finance Equalization and Intergenerational Mobility
94 Pages Posted: 3 Oct 2016 Last revised: 7 Oct 2018
Date Written: September 30, 2018
Large differences in intergenerational mobility exist across US commuting zones, yet little is known about their causes. This paper studies the effects of equalizing per pupil expenditure across public school districts on students' intergenerational mobility, using variation from states' school finance reforms. Tiebout sorting of households across districts following a reform affects house prices, the property tax base, and districts' revenues, creating a problem of endogeneity. I address this issue with a simulated-instruments approach, which uses states' funding formulas and newly collected data on the formula components to simulate revenues for each district in the absence of sorting. 2SLS estimates indicate that equalizing school expenditure increases mobility for low-income students, with small negative effects on high-income pupils. 2SLS estimates are 1.5 times as large as OLS, suggesting that the endogeneity of post-reform expenditure can severely affect these estimates. Equalization affects intergenerational mobility by reducing gaps in inputs (such as the number of teachers) and intermediate educational outcomes (such as high school completion) between low- and high-income districts.
Keywords: School Finance, Education Reform, Equality of Opportunity, Intergenerational Mobility
JEL Classification: I22, I24, J62
Suggested Citation: Suggested Citation