Housing markets and residential segregation: Impacts of the Michigan school finance reform on inter- and intra-district sorting

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractLocal financing of public schools in the United States leads to a bundling of two distinct choices -residential choice and school choice -and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per-pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A was responsible for increases in the value of housing stock in the lowest-spending school districts, and for improvements in several socioeconomic indicators in these districts, implying a decline in neighborhood sorting. We also find that the reform affected dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest-spending school districts, while decreasing the same in the highest-spending districts. However, there is continued high demand for residence in the highest-spending communities, suggesting the importance of neighborhood peer effects ("local" social capital) and implying that even a comprehensive government aid program can fail to make a large impact on residential segregation.

The Impact of State Aid Reform on Property Values: A Case Study of Maryland's Bridge to Excellence in Public Schools Act

“…With dual sales data, he estimates that a $100 increase in per pupil spending increases house prices by 0.51 percent, and a decrease of $1 in annual property taxes raises housing prices by a $4.23. Chakrabarti and Roy (2015) also find a positive relation between Michigan school finance reform and school district property values.…”

“…1 Other studies explore diverse state responses to education reforms (Hoxby 2001;Downes 2010). Empirical studies with a focus on a single state have documented that the capitalization effect of education finance reform varies depending on the characteristics of the reform (Guilfoyle 1998;Brunner, Murdoch, and Thayer 2002;Downes 2010;Chakrabarti and Roy 2015).…”

“…10 We estimate equation 2 for two different school district definitions. First, we follow Chakrabarti and Roy (2015), henceforth CR, by defining categories of districts based on a pre-reform trait that is related to the magnitude of the reform in a district, and hence to the expected impact on property values. In the Michigan case analyzed by CR, the reform was designed to bring per pupil spending up to $6,000 in all districts, with a grandfather clause for districts spending more than that amount already.…”

School Finance Equalization Increases Intergenerational Mobility: Evidence from a Simulated-Instruments Approach

“…Changes to the funding formula affect the tax price (i.e., the dollars of tax revenues required to increase spending by one dollar), which represents the "price" of public schools to taxpayers, and -in turn -households' budget constraints. Households will respond to this change in the tax price by "voting with their feet" (Tiebout, 1956) and by moving to a different district (Aaronson, 1999;Dee, 2000;Figlio and Lucas, 2004;Epple and Ferreyra, 2008;Chakrabarti and Roy, 2015). Due to this sorting, variables such as house prices and property tax revenues, which are included in X sb , will change to X sb+1 .…”

“…Aaronson (1999);Dee (2000);Figlio and Lucas (2004);Epple and Ferreyra (2008);Chakrabarti and Roy (2015) provide evidence of this type of sorting in various contexts.4 Importantly, both the changes in spending inequality and the patterns of household sorting triggered by each reform depend on the pre-reform and post-reform funding formula(Hoxby, 2001). For example, Jackson et al (2015) find that school finance reforms increase expenditure more in ex ante lower-spending districts, whereasHyman (2017) finds that a reform passed in Michigan in 1993 increased expenditure more in low-poverty districts.…”