The Unassuming Economist

From a VoxEU post by Barbara Biasi:

“Rates of intergenerational mobility vary widely across the US. This column investigates the effects of reducing differences in revenues and expenditures across school districts within each state on students’ intergenerational income mobility, using school finance reforms passed in 20 US states between 1986 and 2004. Equalisation has a large effect on mobility, especially for low-income students. The effect acts through a reduction in the gap in inputs and in college attendance between low-income and high-income districts.

There are large differences in intergenerational income mobility across US states and local labour markets. The probability that a child born into a family in the bottom quintile of the national income distribution will reach the top quintile during adulthood is 14.3% in Utah, but only 7.3% in Tennessee (Chetty et al. 2014).

But we do not know much about which factors make a place successful at generating high income and intergenerational mobility. High-mobility places tend to have:

• low income and racial segregation,
• low inequality,
• high social capital, and
• better schools (as proxied by test scores; see Chetty et al. 2018).

These patterns suggest that institutions and public policies have a role in promoting mobility. This cannot, though, be interpreted as a causal relationship.

The first step to mitigating these differences and improving mobility is to nderstand the role of public policies. Recently I examined the causal role of school finance equalisation – a reduction in the differences in public school revenues and expenditures across school districts in a state – on the intergenerational mobility of students exposed to different types of funding plans while in school (Biasi 2019).

US schools were historically funded mostly from local levies such as property taxes, and so wealthier districts (with a larger tax base) were able to spend more per pupil than poorer districts. A funding formula expresses each district’s revenues as a combination of state funds and local levies, and it allocates state aid to each district. In an attempt to equalise expenditure and guarantee equal opportunities to all children, over the past 40 years states have reformed their school finance schemes through changes to these funding formulas.

School finance equalisation reforms have varied across states and over time, although sharing a common objective, As a result, reforms in the same state, implemented under the same name, and with the same objective have had different effects on both the level and the distribution of school expenditure across districts.”

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