Date of Award

Summer 8-8-2017

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Sally Wallace

Second Advisor

Thomas A. Mroz

Third Advisor

Kyle Mangum

Fourth Advisor

Christopher R. Cunningham

Abstract

This dissertation consists of three chapters empirically analyzing how households and state-local governments respond to economic incentives created by school finance policies.

The first chapter analyzes what effect school capital investments have on housing values and household location choice. If the benefit of school capital investments outweighs the potential increase in local taxes, it would create an incentive for households to move into communities with school capital investments so that school capital investments may increase housing values in the context of the Tiebout model. My research identifies an exogenous variation in school capital investments by exploiting the lottery allocation of entitlement to an interest-free construction bond among districts in California. Although the lottery is exogenous, additional non-lottery allocation complicates identification. I develop an empirical model based on a sample selection method to create a counterfactual state in which additional non-lottery allocation would not have existed. I find that receiving the interest-free construction bond increases school capital expenditure and housing values at the district level. I find little evidence for the effect of the bond on household sorting and student’s academic outcomes.

The second chapter studies the centralization of school finance in Michigan and its consequence for school revenue and spending. In an attempt to reduce spending disparities between rich and poor school districts, the Michigan state government centralized a school finance system by restricting local discretion on raising school revenue and increasing grants to district governments. Previous theoretical studies suggest that the centralization could reduce the level of school spending, but the empirical evidence is limited in the literature. Using the district-level panel data on school finance in Michigan and 4 neighboring states for the period of fiscal year 1990-2004, I estimate the effect of the centralization on the level of school revenue and spending and find that the centralization significantly levels down school revenue and spending.

The third chapter investigates how households value the school finance reform’s fiscal package in the case of the Michigan reform by estimating the effect on housing values, based on the Tiebout model in which fiscal attractiveness is capitalized into housing values. Although the previous studies have examined how U.S. states school finance reforms affect school resources and educational outcomes, there exists little literature on whether they are fiscally attractive to households beyond the effect on them. My research fills this gap in the literature. I find that the reform increases median housing values in Michigan, having a greater positive effect on housing values in wealthier communities. It implies that the reform benefits Michigan households on average but benefits wealthier households more.

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