School Finance Equalization and Intergenerational Mobility
84 Pages Posted: 3 Oct 2016 Last revised: 5 Aug 2018
Date Written: July 23, 2018
Large differences in intergenerational mobility exist across US commuting zones, yet little is known about their causes. This paper studies the effects of equalization in public school expenditure across school districts on students’ intergenerational mobility, using variation from states’ school finance reforms. Analyses of migration flows indicate that households sort across districts in response to a reform, which affects the tax base and makes post-reform expenditure endogenous. I address this issue with a simulated-instruments approach, which uses states’ funding formulas and newly-collected new data on the formula components to simulate district expenditures in the absence of sorting. 2SLS estimates indicate that equalization of school expenditure boosts mobility of low-income students, with small negative effects on high-income pupils. Differences between OLS and 2SLS indicate that endogeneity of post-reform expenditure leads to underestimate these effects. Equalization affects intergenerational mobility by reducing gaps in inputs (such as the number of teachers) and educational attainment 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