All School Finance Equalizations Are Not Created Equal

Caroline Hoxby

No 6792, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public school finance equalization programs can be characterized by the change they impose on the tax price of an additional dollar of local school spending. I calculate the tax price of spending for each school district in the United States for 1972, 1982, and 1992. I find that using the actual tax prices (rather than treating school finance equalizations as events) resolves apparently conflicting evidence about the effects of equalizations on per-pupil spending. Depending on whether they impose tax prices greater than or less than one, school finance equalizations either enjoy increased spending under most equalization schemes, but they actually lose spending under the strongest schemes such as those that exist in California and New Mexico. More importantly, regardless of whether an equalization levels down or up, it should be understood as a tax system on districts' spending. I show that school finance equalization schemes have properties that are generally considered undesirable: they raise revenue on a base that is itself a function of the school finance system and they assign tax prices so that people with a high demand for education are penalized relative to otherwise identical people with the same income. I discuss some simple, familiar schemes that do not have these undesirable properties, yet can achieve similar redistribution.

Date: 1998-11
Note: PE
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Published as as "How Much Does School Spending Depend On Family Income? The Historical Origins Of The Current School Finance Dilemma," American Economic Review, Vol. 88, no. 2 (May 1998): 309-314
Published as The Quarterly Journal of Economics, Vol. 116, no. 4, (November 2001): 1189-1231

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