Saving the American Dream? Education Policies in Spatial General Equilibrium

Abstract

Children’s education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children’s education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. We estimate the model with US county-level data and study the effects of a school funding equalization on education outcomes and social mobility. The reform’s direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality.

Keywords: Intergenerational Mobility, Equality of Opportunity, School Access, Education Reform, Regional Labor Markets, Economic Geography, Spatial Economics

JEL Classification: E24, E62, R12, R23,R75, I24, I28