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Intergovernmental Grants and the Demand for Local Educational Expenditures

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  • Michael F. Addonizio

    (Indiana University)

Abstract

Intergovernmental grant programs can create offsetting economic incentives for recipients. This article examines the response of local school district voters to Michigan's Guaranteed Tax Base (GTB) school-aid formula and its Homestead Property Tax Credit program ("circuit breaker"). While some response was found to the price effects of both grant programs, econometric evidence suggests that efforts to reduce interdistrict spending disparities by means of GTB formula price effects will prove futile for two reasons. First, these effects are offset by the counter effects of the circuit breaker. Second, because their demand for school spending is inelastic, voters in "in-formula" districts will convert increased GTB matching aid into property tax relief by reducing tax effort. Further, the finding of statistically different price and income elasticities of demand for local expenditures in high- and low-spending districts, which are also high- and low-property wealth and income districts, suggests that the constant elasticity formulation often used in studies of local education demand is problematic.

Suggested Citation

  • Michael F. Addonizio, 1991. "Intergovernmental Grants and the Demand for Local Educational Expenditures," Public Finance Review, , vol. 19(2), pages 209-232, April.
    • Handle: RePEc:sae:pubfin:v:19:y:1991:i:2:p:209-232
    DOI: 10.1177/109114219101900205
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    References listed on IDEAS

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    2. Ronald C. Fisher & Robert H. Rasche, 1984. "The Incidence and Incentive Effects of Property Tax Credits: Evidence From Michigan," Public Finance Review, , vol. 12(3), pages 291-319, July.
    3. Megdal, Sharon Bernstein, 1984. "A model of local demand for education," Journal of Urban Economics, Elsevier, vol. 16(1), pages 13-30, July.
    4. Moffitt, Robert, 1986. "The Econometrics of Piecewise-Linear Budget Constraints: A Survey and Exposition of the Maximum Likelihood Method," Journal of Business & Economic Statistics, American Statistical Association, vol. 4(3), pages 317-328, July.
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    1. Tae Ho Eom & William Duncombe & Phuong Nguyen-Hoang & John Yinger, 2014. "The Unintended Consequences of Property Tax Relief: New York’s STAR Program," Education Finance and Policy, MIT Press, vol. 9(4), pages 446-480, October.
    2. John Yinger & Phuong Nguyen-Hoang, 2015. "The Behavioral Impacts of Poverty Tax Relief: Salience or Framing?," Center for Policy Research Working Papers 186, Center for Policy Research, Maxwell School, Syracuse University.

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