School Finance Equalization Increases Intergenerational Mobility: Evidence from A Simulated-Instruments Approach
94 Pages Posted: 3 Oct 2016 Last revised: 9 Dec 2020
Date Written: December 8, 2020
This paper estimates the causal effect of equalizing revenues across public school districts on students' intergenerational mobility. I exploit differences in exposure to equalization across seven cohorts of students in 20 US states, generated by 13 state-level school finance reforms passed between 1980 and 2004. Since these reforms create incentives for households to sort across districts and this sorting affects property values, post-reform revenues are endogenous to an extent that varies across states. I address this issue with a simulated-instruments approach, which uses newly collected data on states' funding formulas to simulate revenues in the absence of sorting. I find that equalization has a large effect on mobility of low-income students, with no significant changes for high-income students. Reductions in the gaps in inputs (such as the number of teachers) and in college attendance between low-income and high-income districts are likely channels behind this effect.
Keywords: School Finance, Intergenerational Mobility, Simulated Instruments
JEL Classification: I22, I24, J62
Suggested Citation: Suggested Citation