Discussion quiz
Lisa1314
Prep1.pptxDiscussion Prep
For Quiz 4
Cost – Benefit Aspect
Educational Outcomes are correlated with neighborhood locations
Raj Chetty demonstrates greater educational benefits for the same $45 billion spent (costs) on housing location of low-income families
11.4
Better-educated people…
Participate more politically
Perform fewer criminal acts
Have better health and healthier children
Have better educated children
Have more productive coworkers
See Enrico Morretti in Quiz 4 Folder
Effect of Education Levels on Other Outcomes (Positive Externalities/Benefits of
Educational Achievement
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10
Fiscal Federalism
The United States has a federal system, dividing activity between a national government and state and local governments.
Education, for example, is often provided by state governments.
Optimal fiscal federalism: The question of which activities should take place at which level of government.
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10.1
The type of spending by state and local governments differ from that of the U.S. federal government.
State and local governments spend the majority of revenue on education, followed by health care and public safety.
The federal government spends the majority of revenue on health care, social security, and national defense.
Spending and Revenue of State and Local Governments
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10.1
State and local governments rely on multiple sources of revenues.
State governments use sales and income taxes primarily.
Local governments use property taxes heavily. They comprise about half of local government revenue.
Property tax: The tax on land and any buildings on it, such as commercial businesses or residential homes.
Spending and Revenue of State and Local Governments
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10.2
People not only vote with their feet, they also vote with their pocketbook, in the form of house prices.
House price capitalization: Incorporation into the price of a house the costs (including local property taxes) and benefits (including local public goods) of living in the house.
Areas with relatively generous public goods (given taxes) should have higher house prices.
Evidence on the Tiebout Model: Capitalization of Fiscal Differences into House Prices
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10.2
Tiebout model predicts that local spending should focus on broad-based programs with few externalities and relatively low economies of scale. Local communities should play a limited role in providing public goods that are redistributive, have large spillovers, and have large economies of scale.
If taxes and benefits are linked, and there are no spillovers or economies of scale, then local public good provision is close to optimal.
Optimal Fiscal Federalism
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10.3
If residents perceived that property taxes were “too high” in California, why did they wait until 1978 to lower them?
Proposition 13 was actually a response to school finance equalization in California.
Taxes no longer financed local school spending; just taxes, rather than prices. Tax price became infinite.
Voters were happy to limit property taxes once those taxes no longer brought them any benefit.
APPLICATION: School Finance Equalization and Property Tax Limitations in California (Serrano v Priest, Gruber page 299
10.3
School finance equalization: Laws that mandate redistribution of funds across communities in a state to ensure more equal financing of schools.
Generally, studies conclude that spending equalization has led to an equalization in student outcomes.
Finance equalization schemes differ across states:
California redistributes effectively all revenues.
New Jersey redistributes most revenue from towns with revenue above the 85th percentile.
Redistribution in Action: School Finance Equalization
10.3
Different structures result in different tax prices.
Tax price: For school equalization schemes, the amount of revenue a local district would have to raise in order to gain $1 more of spending.
If half of revenue is redistributed, tax price is $2.
If all revenue is redistributed, tax price is infinite.
Evidence suggests that extreme equalization schemes with very high tax prices may lead to an overall reduction in per-pupil spending. In California Proposition 30, approved by voters in 2012, provided critical revenues to California at a time when the state faced daunting fiscal challenges. These revenues increased school funding and allowed for reinvestment in other public services after years of cuts (with sales tax and income tax increase)
Redistribution in Action: School Finance Equalization
See article on California’s Education Financing
In the Quiz 4 Folder: “Financing Education in California”
Robert Reich proposal for a Progressive Public School/Public Charter Schools Voucher Program is proposed as a remedy to the “cherry picking” problem that exists with standard vouchers for financing public schools. Does it run into scale problems? Equity issues? Public Choice issues?
See “Robert Reich on School Choice” in the Quiz 4 Folder
11.2
Educational vouchers: A fixed amount of money given by the government to families with school-age children, who can spend it at any type of school, public or private.
Vouchers put private schools, non-profit and public schools on equal footing.
Vouchers
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11.2
Voucher proponents make two arguments for them:
Consumer sovereignty
Vouchers allow individuals to more closely match their educational choices with their tastes.
Competition
Vouchers allow the education market to benefit from the competitive pressures that make private markets function efficiently.
Vouchers
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11.2
Critics make several arguments against vouchers.
Vouchers may lead to excessive school specialization.
By focusing on particular market segments, schools give less focus to the key elements of education.
Vouchers will lead to segregation.
Critics of voucher systems argue that vouchers have the potential to reintroduce segregation along many dimensions, such as race, income, or child ability.
Problems with Educational Vouchers
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11.2
Vouchers are an inefficient and inequitable use of public resources.
With vouchers, total public-sector costs would rise, as the government would pay part of the private school costs that families currently pay.
The education market may not be competitive.
The education market is described more closely by a model of natural monopoly, with efficiency gains to having only one monopoly provider of the good.
Problems with Educational Vouchers
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11.3
Evidence is mixed.
Generally suggests that vouchers improve educational outcomes.
They come at the cost of potentially increasing inequality in educational achievement.
Some sort of guarantee of access must be provided to ensure all students have an education.
Bottom Line on Vouchers and School Choice
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