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The Productivity of Schools and Other Local Public Goods Providers

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Author Info
Caroline M. Hoxby

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Abstract

I construct an agency model of local public goods producers with special reference to public schools. The model assumes that households make Tiebout choices among jurisdictions, but it has more realistic assumptions about information and the cost of residential mobility. I examine producers' effort and rent under local property tax finance and centralized finance. I show that, if there are a sufficient number of jurisdictions to choose among, conventional local property tax finance substantially reduces the agency problem and associated loss of productivity. Specifically, I demonstrate that local property tax finance can attain about as much productivity as a social planner with centralized finance can, even if the social planner is armed with more information that a real social planner could plausibly have. The key insight is that decentralized Tiebout choices make some information the social planner would need verifiable and other information unnecessary.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6911.

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Date of creation: Jan 1999
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Handle: RePEc:nbr:nberwo:6911

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Find related papers by JEL classification:
H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
I22 - Health, Education, and Welfare - - Education - - - Educational Finance

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  1. Rauscher, Michael, 1998. "Leviathan and Competition among Jurisdictions: The Case of Benefit Taxation," Journal of Urban Economics, Elsevier, vol. 44(1), pages 59-67, July. [Downloadable!] (restricted)
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  2. Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1997. "Privatization in the United States," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 447-471, Autumn. [Downloadable!] (restricted)
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  3. Thomas. J. Nechyba, 1997. "Existence of equilibrium and stratification in local and hierarchical Tiebout economies with property taxes and voting," Economic Theory, Springer, vol. 10(2), pages 277-304. [Downloadable!] (restricted)
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  4. Hamilton, Bruce W, 1976. "Capitalization of Intrajurisdictional Differences in Local Tax Prices," American Economic Review, American Economic Association, vol. 66(5), pages 743-53, December. [Downloadable!] (restricted)
  5. Fernandez, Raquel & Rogerson, Richard, 1996. "Income Distribution, Communities, and the Quality of Public Education," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 135-64, February. [Downloadable!] (restricted)
  6. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier. [Downloadable!] (restricted)
  7. Peltzman, Sam, 1996. "Political Economy of Public Education: Non-College-Bound Students," Journal of Law & Economics, University of Chicago Press, vol. 39(1), pages 73-120, April.
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  8. Caroline M. Hoxby, 2000. "Does Competition among Public Schools Benefit Students and Taxpayers?," American Economic Review, American Economic Association, vol. 90(5), pages 1209-1238, December. [Downloadable!] (restricted)
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  9. Epple, Dennis & Filimon, Radu & Romer, Thomas, 1984. "Equilibrium among local jurisdictions: toward an integrated treatment of voting and residential choice," Journal of Public Economics, Elsevier, vol. 24(3), pages 281-308, August. [Downloadable!] (restricted)
  10. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December. [Downloadable!] (restricted)
  11. Randall W. Eberts & Ellen K. Schwartz & Joe A. Stone, 1990. "School reform, school size, and student achievement," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-15. [Downloadable!]
  12. Brennan, Geoffrey & Buchanan, James M., 1978. "Tax instruments as constraints on the disposition of public revenues," Journal of Public Economics, Elsevier, vol. 9(3), pages 301-318, June. [Downloadable!] (restricted)
  13. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Glaeser, Edward L, 1996. " The Incentive Effects of Property Taxes on Local Governments," Public Choice, Springer, vol. 89(1-2), pages 93-111, October.
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  15. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March. [Downloadable!] (restricted)
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