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A Simultaneous Equations Model of the Demand for and Production of Local Public Services: the Case of Education

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  • Donald N. Baum

    (Temple University)

Abstract

In this article I specify a simultaneous equations model of the demand for and production of educational outputs, estimate the model for 46 Los Angeles County school districts, and use the model to simulate the effects of a county-wide property tax base sharing policy. The price elasticity estimates for educational outputs are far more inelastic than previous estimates. My income elasticity estimates are mildly inelastic and similar to previous estimates. I demonstrate that previous studies, which estimated reduced-form expenditure functions, were misspecified and did not estimate the demand elasticities for local public services. I also demonstrate that an areawide tax base sharing plan assists the poorest school districts but also benefits middle- to upper-middle-income low-property tax base districts and harms lower- to middle-income high-property tax base districts.

Suggested Citation

  • Donald N. Baum, 1986. "A Simultaneous Equations Model of the Demand for and Production of Local Public Services: the Case of Education," Public Finance Review, , vol. 14(2), pages 157-178, April.
    • Handle: RePEc:sae:pubfin:v:14:y:1986:i:2:p:157-178
    DOI: 10.1177/109114218601400203
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    References listed on IDEAS

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    1. McDougall, Gerald S, 1976. "Hedonic Prices and the Demand for Local Public Goods," Public Finance = Finances publiques, , vol. 31(2), pages 265-279.
    2. Rosen, Harvey S & Fullerton, David J, 1977. "A Note on Local Tax Rates, Public Benefit Levels, and Property Values," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 433-440, April.
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    Cited by:

    1. José Cruz, 2001. "An empirical application of the median voter model and of the interest group influence model to the Portuguese and Galician municipalities," ERSA conference papers ersa01p25, European Regional Science Association.
    2. Rhee, Se-Koo, 1996. "The impact of intergovernmental grants-in-aid on public school expenditure under the segregated school system," ISU General Staff Papers 1996010108000012396, Iowa State University, Department of Economics.
    3. Theodore M. Crone, 1998. "House prices and the quality of public schools: what are we buying?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-14.
    4. Duplantis, Malcolm M. & Chandler, Timothy D. & Geske, Terry G., 1995. "The growth and impact of teachers' unions in states without collective bargaining legislation," Economics of Education Review, Elsevier, vol. 14(2), pages 167-178, June.
    5. Rowena Crawford & Richard Disney & Polly Simpson, 2018. "The determinants of local police spending," IFS Working Papers W18/09, Institute for Fiscal Studies.

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