Economic Incentives and Political Institutions: Spending and Voting in School Budget Agenda

56 Pages Posted: 6 Apr 2007 Last revised: 20 Apr 2022

See all articles by Thomas Romer

Thomas Romer

Princeton University - Department of Political Science; Princeton University - Princeton School of Public and International Affairs

Howard Rosenthal

New York University

Vincent Munley

affiliation not provided to SSRN

Date Written: October 1987

Abstract

Allocation of resources in the local public sector involves economic and political forces. Spending for elementary and secondary education is a major area of public expenditure. In many states, the bulk of this spending is subject to referendum. In addition, grants-in-aid from state governments to local school districts form an important component of the district revenues. This paper has two main features. One is the characterization of local spending when the state aid structure is of the closed-end matching grant type. Under this structure, local tax price is endogenous, since the amount of state subsidy depends on the district's spending choice. The other main feature is the linking of spending proposals to referendum outcomes. In this way, our model makes use of voting data to shed light on the extent to which referenda constrain spending. The empirical setting is public school budget referenda in 544 New York school districts for the 1975-76 school year. Our econometric results and simulations based on them reveal considerable sensitivity of spending to the form of the grant structure, as well as to the referendum requirement. In addition, large school districts appear to behave more like "budget-maximizers" than do small districts, where proposals appear to be more in line with "median voter" demands.

Suggested Citation

Romer, Thomas and Rosenthal, Howard and Munley, Vincent, Economic Incentives and Political Institutions: Spending and Voting in School Budget Agenda (October 1987). NBER Working Paper No. w2406, Available at SSRN: https://ssrn.com/abstract=977434

Thomas Romer (Contact Author)

Princeton University - Department of Political Science ( email )

Corwin Hall
Princeton, NJ 08544-1013
United States

Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Howard Rosenthal

New York University ( email )

19 W 4th St
New York, NY New York 10012
United States
4155199591 (Phone)
4155199591 (Fax)

Vincent Munley

affiliation not provided to SSRN

No Address Available

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