One of the federal government's main elementary and secondary education programs is Title I, which allocates money for compensatory education to school districts based on child poverty. I use sharp changes in per-pupil grant amounts surrounding the release of decennial census data to identify effects of Title I on state and local education revenue, and how much the program ultimately increases spending by recipient school districts. I find that state and local revenue efforts initially are unaffected by Title I changes, but that local governments substantially and significantly crowd out changes in Title I within in a three-year period. JEL subject codes: H7, H4, I2.

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Both the federal government and the states use intergovernmental grants to try to change the composition of local spending across different programs, as well as the distribution of resources across localities. Many states are now under court-order to use state education grants to reduce local disparities in education spending. While a substantial body of literature suggests that these court orders increase the level and progressivity of state education spending, there is little evidence on their broader effects on the total resources available not just for schools in low income districts, but for other programs across all localities. We find that states finance the required increase in education spending in part by reducing their aid to localities for other programs, particularly for wealthier districts. Thus, while court-ordered school finance equalizations do increase total state aid to localities for education, they do so at the expense of drawing state intergovernmental aid away from programs like public welfare, health, hospitals, and general services. These findings provide insight into the effectiveness of using earmarked funds to achieve redistribution.

We analyze the effects of the introduction of Title I of the 1965 Elementary and Secondary Education Act, a large federal grants program designed to increase poor students' educational services and achievement. We focus on the South, the poorest region of the country. Title I increased school spending by $0.50 on the dollar in the average southern school district and by more in districts with less ability to offset grants through local tax reductions. Title I-induced increases in school budgets appear to have reduced high school dropout rates of whites, but not blacks. (JEL H52, H75, I21, I28, J15)