Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education--Finance

TLDR

School‑finance reforms are being adopted by many states and are expected to affect income distribution, intergenerational mobility, and welfare. The study examines the static and dynamic impacts of school‑finance reforms using a calibrated dynamic general equilibrium model. The authors model a shift from locally financed to state‑financed schooling that equalizes per‑student spending across districts within a dynamic general equilibrium framework calibrated to U.S. data. The reform raises average income and the proportion of income spent on education, and steady‑state welfare grows by 3.2 % of income.

Abstract

Many states are implementing school-finance reforms which will have complex effects on income distribution, intergenerational income mobility, and welfare. This paper analyzes the static and dynamic effects of such reforms by constructing a dynamic general equilibrium model of public-education provision and calibrating it using U.S. data. The authors examine the consequences of a reform of a locally financed system to a state-financed system which equalizes expenditures per student across districts. They find that this policy increases both average income and the share of income spent on education. Steady-state welfare increases by 3.2 percent of steady-state income. Copyright 1998 by American Economic Association.