Using market valuation to assess public school spending

Abstract

In this paper we use a "market-based" approach to examine whether increased school expenditures are valued by potential residents and whether the current level of public school provision is inefficient. We do so by employing an instrumental variables strategy to estimate the effect of state education aid on residential property values. We find evidence that, on net, additional state aid is valued by potential residents and that school districts do not appear to overspend on education. We also find that school districts may overspend in areas in which residents are poor or less educated, in large districts, and in districts with higher shares of rental property. One interpretation of these results is that increased competition has the potential to reduce overspending on public schools in some areas.

The Impact of the Crime Rate and Star Schools on House Prices: An Analysis of Spatial Dependence

“…Parents with children and a higher income are willing to pay more for houses in exchange for getting the children in these high quality schools. The empirical results of this study confirmed the research results by Barrow and Cecilia (2004).…”

“…This suggests that school quality can significantly affect the price level of houses, Haurin and Brasington (1996) selected 29 variables (4 variables representing schools) and applied the hedonic price model for the housing market, confirming that the quality of schools in Ohio (in the United States) has a considerable impact on house prices, confirming that the distance from downtown, and the comfortableness (community crime rate, cultural arts, amusement) also have a considerable impact on house prices. Barrow and Cecilia (2004), using the District of Columbia (again, in the United States) as an empirical research region, argued that school quality is one of the major considerations when selecting a residence. Parents with a higher level of income are willing to pay higher prices in exchange for their children having the opportunity to study in a high quality school (an amount of 3,300 USD extra in exchange for an increase of 100 points in SAT (Standard Aptitude Test) 8 achievement scores).…”

“…The star school coefficient is positive at a 5% significance level, suggesting that house prices in star school zones are higher than those in other areas. Barrow and Cecilia (2004) pointed out that school quality is one of the major considerations in the selection of houses. Parents with children and a higher income are willing to pay more for houses in exchange for getting the children in these high quality schools.…”

Financing Cities

“…Communities that over-or underspend relative to resident preferences will see their land values decline. Barrow and Rouse (2004) Massachusetts passed Proposition 2½ limiting local taxation to 2.5 percent of local property values.…”

You Can Take It with You: Transferability of Proposition 13 Tax Benefits, Residential Mobility, and Willingness to Pay for Housing Amenities

“…The associated tax savings can be substantial: Considering the one quarter of San Francisco Bay Area families with more than 20 years of housing tenure in 1 Much of the intuition on household sorting was derived from a long line of theoretical work in local public finance that started in Tiebout (1956), and which includes Epple and Zelenitz (1981), Epple, Filimon, andRomer (1984, 1993), Benabou (1993), Fernandez and Rogerson (1996), Nechyba (1997) and Epple and Sieg (1999). 2 Recent examples are found in Barrow and Rouse (2004), Rothstein (2006) and Bajari and Kahn (2005). 3 As Rubinfeld (1987) points out "the value and usefulness of the Tiebout model is likely to diminish in the future, and an alternative or alternatives are needed."…”