EducationFinanceSystems - Equity and Resources: An Analysis...

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Equity and Resources: An Analysis of Education Finance Systems Raquel Fernández New York Univeristy CEPR and NBER Richard Rogerson Arizona State University NBER September 5, 2002 Abstract We analyze f ve education f nance systems: local, State, foundation, power equalizing with recapture (PER) and power equalizing without re- capture (PEN). In a calibrated model, we f nd that f nance systems have large e f ects on educational resources and equity. The trade-o f between equity and resources, however, is not monotone. Ranking systems by ex- pected utility, we f nd that PER consistently ranks highest, though it pro- vides fewer resources to education than the foundation and PEN systems, and is less equitable than a state system. We prove that for an important subset of preferences, PER will win in majority voting comparisons with the other systems. 1. Introduction Publicly f nanced education is a pervasive feature of modern economies. Even a casual look at education spending patterns across either states within the US or across countries, however, reveals substantial variation in both spending on public We wish to thank Richard Romano, Eli Berman and seminar participants at the University of Iowa, University of Michigan, Boston University, and NYU as well as at the NBER Public Economics Conference on Education Finance and the Florida University Conference on Educa- tion Policy, for helpful comments. Both authors gratefully acknowledge f nancial support from their respective NSF grants and the f rst author also thanks the CV Starr Center for support.
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education and its distribution across students. This may be thought to be in large part a result of the rules which impact on education spending—what we will call the education f nance system . Education f nance systems di f er signi f cantly across US states and across coun- tries and, not surprisingly, are the subject of much controversy. In the US, states have found themselves facing actual or threatened court challenges to their edu- cation f nance systems over the last several decades, most often on the grounds that the actual system results in large inequities. As a result, many states have made dramatic changes to their systems of f nancing K- 1 2 education with the speci f c objective of providing more equitable educational opportunities. There has been relatively little accompanying analysis, however, examining how these changes might a f ect the total sum of resources dedicated to education and whether indeed increased equality is a likely outcome. Central to understanding how a school f nance system a f ects the sum and distribution of education resources is an analysis of the mechanisms through which it transfers resources across individuals and distorts incentives to devote funds to education. The objective of this paper is to study these mechanisms in a simple general equilibrium model and to perform a calibration exercise to assess their quantitative signi f cance. In order to do so, we use a standard model of local public f
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This note was uploaded on 10/23/2010 for the course ECON 101 taught by Professor Buddin during the Fall '08 term at UCLA.

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EducationFinanceSystems - Equity and Resources: An Analysis...

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