School Finance Equalization and Intergenerational Mobility
89 Pages Posted: 3 Oct 2016 Last revised: 2 Mar 2018
Date Written: February 28, 2018
School finance equalization reforms aim to reduce differences in per-pupil expenditure across school districts within each state. This paper studies the effects of equalization on students' intergenerational income mobility. I measure equalization in school expenditure with the correlation between per-capita income and per-pupil expenditure across districts for each US commuting zone and year. Migration data show evidence of Tiebout sorting of households across districts after each reform, which can cause endogeneity of post-reform expenditure. To address this issue I use a simulated instruments approach. Specifically, I reconstructed each state's funding formula and I collected data on the variables entering each formula. I then use these data and the formula to simulate the revenues each district would have collected in the absence of sorting. Two-stages least squares indicate that equalization is beneficial for mobility of low-income students. Furthermore, differences between OLS and 2SLS estimates indicate that not accounting for endogeneity of post-reform expenditure could lead to underestimate the effects of these reforms. Equalization affects intergenerational mobility by reducing differences in inputs (such as the number of teachers) and in educational attainment between low-income and high-income districts.
Keywords: School Finance, Education Reform, Equality of Opportunity, Intergenerational Mobility
JEL Classification: I22, I24, J62
Suggested Citation: Suggested Citation