The relation between local financing and education outcomes: evidence from US school districts

• In Event: Effects of local control

Abstract

This paper explores the effects of locally raised revenue on educational outcomes. We hypothesize that a higher local revenue share will be related to better school performance, as citizens will be more demanding and in control of the school budget, through local governance institutions (often democratically elected boards) and self-interest in enhancing home property prices. Empirically, we look at cross-sectional variation in individual test score outcomes from the National Assessment of Educational Progress (NAEP) 2007 microdata. First, we exploit variation in changes in house prices during the housing boom from 2000 to 2007. Second, we use variation from state fiscal regimes and third, we leverage covariation within a geographic area. Consistently, local revenue share is associated with about .3-.7% SD higher scores per additional percentage point of local revenue share. It is also associated with greater inequality by socioeconomic status. We find evidence that locally financed districts differ by spending more on teacher salaries and less on administration and that Tiebout competition amplifies the effect of local financing. we find no evidence of a relation between local revenue and citizen participation in education governance. These findings suggest an important behavioral dimension of local financing that would support its continued use.

Author

• Carlos Xabel Lastra-Anadon, Harvard University