Equity and Resources: an Analysis of Education Finance Systems

41 Pages Posted: 16 Jun 1999 Last revised: 7 Jun 2021

See all articles by Raquel Fernández

Raquel Fernández

New York University - Leonard N. Stern School of Business, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Richard Rogerson

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER); Princeton University - Princeton School of Public and International Affairs

Multiple version iconThere are 2 versions of this paper

Date Written: May 1999

Abstract

Over the last few decades many US states have made large changes to their systems of financing K-12 education with the explicit objective of providing more equitable educational opportunities. There has been relatively little accompanying analysis, however, examining how these changes might affect the total sum of resources dedicated to education and whether indeed increased equality is a likely outcome. We analyze five different education finance systems: local, State, foundation, power equalizing with recapture (PER) and power equalizing without recapture (PEN). We find that finance systems can have very large effects on both resources devoted to education and equity. Our calibration suggests that total spending on education may differ by as much as 25% across systems. The trade-off between equity and resources, however, is not monotone. Although spending in a local system is typically greater than that in either the State system or PER, total spending is typically highest for the foundation and PEN systems, both of which reduce inequality of educational resources substantially relative to a local system. We also rank systems in welfare terms by carrying out an expected utility calculation. We find that PER consistently ranks best, though it provides fewer resources to education than the foundation and PEN systems, and falls well short of the state system in terms of equity. Additionally, we find that the PER system is remarkably popular among these alternative finance systems--we prove analytically that for an important subset of preferences PER will win in majority voting comparisons with each of the other systems.

Suggested Citation

Fernández, Raquel and Rogerson, Richard, Equity and Resources: an Analysis of Education Finance Systems (May 1999). NBER Working Paper No. w7111, Available at SSRN: https://ssrn.com/abstract=165101

Raquel Fernández (Contact Author)

New York University - Leonard N. Stern School of Business, Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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Richard Rogerson

Arizona State University (ASU) - Economics Department ( email )

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National Bureau of Economic Research (NBER)

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Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
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United States

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