Essays on the Political Economy of Education Finance

Abstract

Local government spending on K-12 public education typically comprises almost half of total spending on K-12 public education in the United States. Local governments typically rely on funds from property tax levies to finance the yearly operating budget for local public schools in their district. These property taxes are often the outcome of a process that is political in nature, since local tax levies may be subject to a voter referendum. This dissertation gives new contributions to the study of these voter referenda and their implications for public finance using both theoretical and empirical approaches. In an economic downtown, the question of how local funding for schools responds to losses in state aid and disposable income becomes even more pressing. Using an agenda setter model with uncertainty over voter turnout, I develop a systematic approach to analyzing the effects of income and grant aid changes on local property tax levies, overall funding for schools, and the probability of referenda passing. The analysis uses certain properties of indifference curves for normal goods. I also show that budget-maximizing school boards in homogeneous districts choose budget proposals that have high rates of voter support. The empirical chapter provides an investigation of the outcomes of New Jersey K-12 public school budget referenda. For failed budget proposals, school budget cuts are determined by local governing bodies whose decisions are not specified by law. Using a unique compilation of voting, demographic, and school finance data including school budget proposals and outcomes, this study tests and supports the hypothesis that local governing bodies choose larger reductions for those budget proposals that are larger and more unpopular. Additionally, I analyze the voter support for the referendum and test whether larger proposed tax levies are associated with higher levels of voter opposition. I find that the effect of a larger proposal on the level of voter opposition depends on the circumstances that surround the larger proposal, and I propose two theories that explain the different effects. Furthermore, I find that the level of educational attainment of a district is an important predictor for school budget referendum success.