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School Finance Equalization Increases Intergenerational Mobility

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Barbara Biasi discusses the causal effect of equalizing revenues across public school districts on students’ intergenerational mobility.

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Image courtesy of interviewee. September 21, 2023

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The study discussed in the text investigates the disparities in intergenerational mobility across different regions in the United States, particularly focusing on the influence of school funding on these differences. Findings from research by Raj Chetty and colleagues in 2014 revealed that the likelihood of a child from a low-income family moving to the top income bracket varies significantly from as low as 4% in some southern areas to 11% in places like Salt Lake City.

The research aims to explore whether reforms in school funding—historically reliant on local property taxes—can help explain these differences in mobility. Local property taxes result in better funding for wealthier districts, perpetuating income inequality in education. In response to lawsuits claiming such funding methods violate the 14th Amendment, various states have implemented reforms to redistribute funding more equitably, thereby aiming to provide similar educational opportunities regardless of district wealth.

The study's model examines how public school funding impacts child outcomes in the labor market, linking parental income to children's future earnings. The author analyzed data across approximately 720 commuting zones, focusing on funding equality measures calculated through the correlation of school spending and community income.

Results indicate that reforms aimed at equalizing school funding positively impact intergenerational mobility, particularly for children from low-income backgrounds. Key mechanisms contributing to this include improved teacher-to-student ratios and potentially better college attendance rates for disadvantaged children. Importantly, equalized funding does not adversely affect children from wealthier families, as they can supplement educational resources through private means.

Overall, the study underscores the significance of equitable public education investment in enhancing opportunities for disadvantaged children, altering the trajectory of intergenerational mobility.

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Here are five key points from the video:

1. **Study on Intergenerational Mobility**: The research focuses on differences in intergenerational mobility across the United States, highlighting that children from lower-income families have a very low probability of reaching higher income brackets, which can vary significantly by region (e.g., from as low as 4% in the South to 11% in Salt Lake City).

2. **Role of School Funding**: The study investigates how school funding mechanisms, historically reliant on local property taxes, contribute to disparities in intergenerational mobility. Wealthier districts benefit from higher property values and consequently more funding for schools, leading to unequal educational opportunities.

3. **Legal Reforms and Equalization**: A series of lawsuits since the late 1960s have challenged the constitutionality of the funding model. As a result, reforms have been implemented across various states to redistribute funding more equitably based on needs rather than local wealth.

4. **Research Methodology**: The study constructs a dataset analyzing revenues, expenditures, and measures of intergenerational mobility across commuting zones in the U.S. It examines the correlation between per-pupil spending and per capita income, intending to assess the impact of school finance equalization reforms on mobility.

5. **Findings on Mobility and Education**: The findings suggest that equalizing school funding positively affects intergenerational mobility, particularly boosting the incomes of children from disadvantaged backgrounds. The research identifies two main channels for this effect: improved inputs in education (e.g., student-to-teacher ratios) and increased college attendance probabilities, suggesting that an equitable funding system benefits lower-income students without negatively impacting those from higher-income families.

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Here are some key quotes from the video that encapsulate the main ideas and findings regarding intergenerational mobility and school funding:

1. **Introduction to the Study:**
- "The starting point of the study is a fact that has been uncovered by some research published by, uh, Rash Chad at Harvard and his co-authors in 2014, that has unveiled ... a lot of differences in rates of intergenerational mobility across the country."

2. **Intergenerational Mobility Rates:**
- "The probability that a child that is born in the bottom 20% of the parental income distribution reaches the top 20% is very, very low, as low as 4% in some parts of the country, especially in the South..."

3. **Role of School Funding:**
- "This study tries to understand whether there's a role for the way that schools are funded in explaining these differences in intergenerational mobility."

4. **Historical Convideo of School Funding:**
- "Schools have been traditionally funded through revenues from local property taxes... districts that are wealthier ... have higher property tax bases."

5. **Challenges to School Funding Equality:**
- "There’s been a wave of lawsuits across the country that have challenged the constitutionality of this way of funding the schools claiming that it violates the 14th amendment of the US Constitution that says that all children should have access to the same opportunities."

6. **Finding on Funding Equality Reforms:**
- "...intergenerational mobility response to this reform...indicates that equalizing spending across districts leads to higher earnings for poor kids when they grow up."

7. **Conclusion on Absolute Intergenerational Mobility:**
- "Absolute intergenerational mobility can be written as the probability that a child that is born on the 20th percentile of parental income... will find their average income rank in adulthood higher."

8. **Mechanisms of Impact:**
- "There's two channels that I explore... equalization in inputs...and...equalization in the probability of attending college."

9. **Impact on Disadvantaged Children:**
- "...equalizing spending across public schools can really have profound impacts on the opportunities that children can enjoy, particularly true for children that are born at the kind of bottom of the income distribution."

10. **Non-Zero-Sum Approach:**
- "This equalization does not seem to hurt children who are born in kind of more advantaged backgrounds...it's not a zero-sum game."

These quotes illustrate the study's premise that school funding reforms can significantly influence intergenerational mobility, especially for children from lower income backgrounds, and highlight the mechanisms linking funding equality to improved educational outcomes.

X-TIMESTAMP-MAP:LOCAL=00:00:00.000,MPEGTS=900000

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So the starting point of the study is a fact that has been uncovered by some

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research published by, rash Chad at Harvard and his co-authors in 2014,

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that has unveiled,

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a lot of differences in rates of intergenerational mobility across the country.

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So we have seen the, for example,

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the probability that a child that is born in the top 20,

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in the bottom 20% of the parental income distribution reaches the top 20%,

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is very, very low, as low as, 4% in some parts of the country,

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especially in the South,

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but it can be as high as 11% in places like Salt Lake City.

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And so the big question that this line, that this study has,

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kind of opened up is what explains this differences. And so this studies,

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my study tries to understand whether there's a role for the way that schools are

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funded, in explaining this differences in intergenerational mobility.

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So that's in a nutshell what the study tries to do. So,

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I think in order to understand how the reforms work,

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we need to take a step back in history and understand how historically schools

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in the US have been funded. Um,

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they have been traditionally funded through revenues from local property taxes

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for the most part, which implies that districts that are wealthier, that have,

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higher income, higher wealth families have higher property values,

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houses are just more expensive,

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and therefore they have a higher property tax base. So they're able, they,

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they were able to spend more on their schools. Now, since the late sixties,

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early seventies, there's been a wave of, lawsuits,

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across the country that have challenged the constitutionality of this way of

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funding the schools claiming that it violates,

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the 14th amendment of the US Constitution that says that all children should

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have access to the same opportunities. Um, and so these has basically triggered,

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again, a wave of reforms across the country,

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which have touched virtually all states in the case of some states multiple

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times, over time.

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And what these reforms have tried to do is rewrite the way that,

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the kind of formula that determines how much money a school is going to have,

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to be spent on current expenses in a given year as a combination of local

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revenues and state aid.

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So what these reforms have done is kind of rewriting the way that state aid is

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distributed to, to districts in a way that will give more,

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in principle more, resources to districts that are, that have lower,

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property tax basis compared to districts that are instead wealthier in an

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attempt to equalize how much districts can spend in a given year,

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at least within a state.

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So why did I think that studying the impact of school finance,

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equalization reforms, and intergenerational mobility would make sense?

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The model I had in mind is one where, the outcomes of the children,

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when they grow up and they enter the labor market,

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can be written as a function of their parental kind of background,

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their parental income, as well as some,

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returns from investments in education. Now,

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If we also make the investments in education, including public education,

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dependent on parental income,

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because richer districts will spend more and poorer districts will spend less,

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what we're gonna have is that the relationship between the income incomes of the

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parents and the incomes of the children, which is, if you will,

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a measure of kind of an opposite measure of intergenerational mobility,

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that relationship's gonna be stronger and mobility is gonna be lower.

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So that was, kind of the model that I had in mind of what I wanted to test,

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with my data. So what I did is assemble, assemble a data set that contained,

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revenues, expenditures,

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and measures of intergenerational mobility,

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for all commuting zones in the United States. Just for reference,

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a commuting zone is a geographic area, within which people live and,

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work. So there's about 720 commuting zones in the United States. Um,

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and the idea is that, each commuting zone,

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can contain more than one school district. So you could have a distribution of,

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of, of spending,

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district level spending within the same commuting zone.

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And so what I did empirically was try, first of all,

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try to calculate a measure of equality of the funding system.

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And what I, the, the measure that I came up with is simply the correlation,

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the slope between per pupil spending and per capita income across districts

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within a state. So why is that a relevant measure of equalization? Well,

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because if you think about it, if that correlation is zero,

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then that means that all districts are kind of spending similar amounts on

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average. Whereas if that correlation is positive,

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that means that richer districts in a state are spending,

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more than poorer districts. And so the idea was to,

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look at the impact of the changes in that correlation triggered by school

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finance equalization reforms on measures of intergenerational mobility of

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children who grew up in, those same commuting zones. Okay?

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And the idea was to calculate that measure of equalization during using data

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from,

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the kind of periods of time in which each child was in

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public schools. So K to 12, what I find is that,

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indeed intergenerational, sorry, school finance equalization that is,

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making that correlation,

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go from positive to kind of flat or even negative in some cases. So,

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hinting at some sort of redistribution, has a positive,

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impact on intergenerational mobility. So, we've,

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I find that primarily absolute intergenerational mobility response to this

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reform, just a, as a refresher,

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absolute intergenerational mobility can be written as the,

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probability that a child that is born on the 2050 income,

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parental income percentile, what what is gonna be its average,

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income rank in, in adulthood. Okay?

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So a higher absolute mobility denotes higher incomes of poor children when they

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go up. So, so this basically is the kind of bottom line,

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bottom line finding of the paper. And there's a few, kind of,

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mechanisms that I try to explore for, for this type of funding.

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So what might be, what might be driving this effect?

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How is it, what, what is causing the fact that equalizing spending across,

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districts and public schools leads to higher earnings for poor kids when they

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grow up? There's two channels that I explore and also find evidence on.

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One is equalization in inputs.

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And so I look at the student to teacher ratio,

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or rather the teacher to student ratio as a measure of the,

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inputs, that a school is able to kind of invest in their children.

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And what I find is that in the aftermath of school finance equalization reforms,

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there's a, a reduction in the difference in the,

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teacher to student ratio between, poorer districts and richer districts,

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which means that they're basically able to,

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kind of have a similar production function of education. So that is the first,

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kind of, channel that I explore.

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And the second is a little bit more tentative because the results are a little

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bit less precise than, what we would hope that they are.

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But there is some suggestive evidence that a part of the effect acts through an

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equalization in the probability of attending college. Okay?

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So what we find is that if equalizing spending across,

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across school districts in a state,

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reuses the differences in the probability of attending college between children

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who come from different parts of the income distribution disparities,

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especially disparities that, persist over time,

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in the amount of money that is spent on public schools can really have profound

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impacts on, the opportunities that children can enjoy,

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when they grow up. And this is particularly true for,

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children that are born sort of at the kind of bottom of the income distribution.

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So children who are born in more disadvantaged backgrounds.

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And I should mention also that this, equalization,

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does not seem to hurt children who instead are born in kind of more,

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advantaged backgrounds. So, it's not, does not seem,

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seem to be a zero sum game, probably because,

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even if this equalization is kind of redistributing some resources away from

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wealthier children towards, less wealthy children,

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the wealthier children are able to kind of replace those,

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resources that would otherwise be spent on,

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on their public education with some private investments that, and,

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and therefore don't seem to kind of miss out in terms of outcomes,

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which I think is also an important, you know, kind of result to,

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to keep in mind, especially when, when we're thinking about policy implications.

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