Housing Disease and Public School Finances

51 Pages Posted: 28 Dec 2017

See all articles by Matthew Davis

Matthew Davis

University of Pennsylvania - The Wharton School

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Date Written: December 2017

Abstract

Median expenditure per student in U.S. public schools grew 41% in real terms from 1990 to 2009. We propose a new mechanism to explain part of this increase: housing disease, a fiscal externality from local housing markets in which unexpected booms generate extra revenues that schools administrators have incentives to spend, independent of local preferences for provision of public goods. We establish the importance of housing disease by: (i) assembling a novel microdata set containing the universe of housing transactions for a large sample of school districts; and (ii) using the timelines of school district housing booms to disentangle the effects of housing disease from reverse causality and changes in household composition. We estimate housing price elasticities of per-pupil expenditures of 0.16-0.20, which accounts for approximately half of the rise in public school spending. School districts did not boost administrative costs with those additional funds. Instead, they primarily increased spending on instruction and capital projects, suggesting that the cost increase was accompanied by improvements in the quality of school inputs.

Suggested Citation

Davis, Matthew and Ferreira, Fernando V., Housing Disease and Public School Finances (December 2017). NBER Working Paper No. w24140, Available at SSRN: https://ssrn.com/abstract=3092988

Matthew Davis (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

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