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All Economics Is Local: How Macroeconomic Trends Affect the Political Economy of Neighborhood Schools

  • Author(s): Hearey, Owen Foley
  • Advisor(s): Boustan, Leah
  • et al.

This dissertation uses the institutions of public schooling in the U.S. as a lens to study how broad economic trends -- rising income inequality and the business cycle -- affect household residential choice, neighborhood composition and popular support for local public goods.

The first chapter explores the consequences of rising neighborhood inequality for public schools. Income inequality across neighborhoods more than doubled in the U.S. between 1970 and 2010. This spatial reallocation may affect public schools through changes to the distribution of peers and support for local taxes. I find that rising neighborhood inequality within a school district increases local school funding, but also depresses human capital investment, primarily due to a widening gap between low- and high-income neighborhoods. These results are robust to instrumenting for changes in neighborhood incomes with the initial allocation of households interacted with differential national trends in household income growth by percentile.

The second chapter proposes an economic model to explain these findings. Public schools are customarily funded by a district-wide property tax, yet school quality varies considerably within districts due partly to neighborhood differences in student preparedness. In response, high-income households may choose to cluster in a few neighborhoods, lowering the average income of households in the other neighborhoods. The district's median voter, to compensate for a decline in peer quality in her own neighborhood, may elect to raise the district-wide tax rate. Consistent with the implications of this model, I find empirically that declining income in the median voter's neighborhood is associated with increasing local tax revenue per household.

The third chapter examines the business cycle dynamics of public school quality valuation. While the value of school quality improvements is critical to human capital investment decisions and education policy, little is known about how it varies with the business cycle. We apply a hedonic pricing model to data on home sales in Los Angeles County between 2000 and 2013 to study changes over time in homeowners' valuations, exploiting elementary school attendance boundaries to provide identifying variation. We find that homeowners' valuations are countercyclical -- they value quality improvements more during "busts" than in "booms."

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