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School Finance Equalization Increases Intergenerational Mobility: Evidence from a Simulated-Instruments Approach

Barbara Biasi

NBER Working Paper No. 25600
Issued in February 2019
NBER Program(s):Children, Economics of Education, Labor Studies, Public Economics

This paper estimates the causal effect of equalizing revenues across public school districts on students' intergenerational mobility, using variation from 13 school finance reforms passed in 20 US states between 1986 and 2004. Since households sort in response to each reform, post-reform revenues are endogenous to an extent that varies across states depending on the funding formula. I address this issue with a simulated-instruments approach, which uses newly collected data on states' funding formulas to simulate revenues in the absence of sorting. I find that equalization has a large effect on mobility, especially for low-income students. I provide suggestive evidence that this effect acts through a reduction in the gap in inputs (such as the number of teachers) and in college attendance between low-income and high-income districts.

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Document Object Identifier (DOI): 10.3386/w25600

 
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