Capitalization, Equalization, and Intergovernmental Aid

Paul Gary Wyckoff
Additional contact information
Paul Gary Wyckoff: Hamilton College

Public Finance Review, 1995, vol. 23, issue 4, 484-508

Abstract: This article makes a simple but heretofore unappreciated point: In urban areas, voter movement will cause equalizing intergovernmental aid (such as state education aid) to be capitalized into the value of housing. Because poor voters are likely to be renters, they will have to pay for better schools created by state aid through higher housing costs. To establish this point, the article describes a very simple model of an urban area with two communities and three income groups. In the case of an urban area in which the central city is not large relative to the metropolitan region, the welfare effect of intergovernmental aid on poor voters is completely offset by higher housing costs. Rather than increasing the total resources available to poor people, intergovernmental aid amounts to a Hicksian price adjustment that leaves the poor no better off than before. The article then discusses real-world complications to the model, including alternative decision-making mechanisms and preferences, and concludes that capitalization is an important overlooked feature in education grant systems.

Date: 1995
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/109114219502300404 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:23:y:1995:i:4:p:484-508

DOI: 10.1177/109114219502300404

Access Statistics for this article

More articles in Public Finance Review
Bibliographic data for series maintained by SAGE Publications ().