Saving the American Dream? Education Policies in Spatial General Equilibrium

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 9574Children's education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children's education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. This paper estimates the model with US county-level data and studies the effects of a school funding equalization on education outcomes and social mobility. The reform's direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality. This paper is a product of the Development Research Group, Development Economics. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world.

Educational Inequality

“…As a result, educational inequality increases, in turn further widening economic inequality. In a similar setting, Eckert and Kleineberg (2021) show that a policy that equates school funding across neighborhoods has only limited benefits due to the endogenous response of residential segregation.…”

Suburbanization in the USA, 1970–2010

“…A third group of studies have pointed towards changes in amenities, crime and public schools as important drivers of the dispersion of population from central cities. Research on crime and public schools includes Benabou (1996), Benabou and Fernandez (1996), Glaeser and Sacerdote (1999), and Eckert and Kleineberg (2021). A number of studies highlight increased segregation in terms of race, ethnicity and human capital, including Boustan (2000), Boustan and Margo (2009), Fogli andGuerrieri (2019), andChetty et al (2020).…”