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Can We Save the American Dream? A Dynamic General Equilibrium Analysis of the Effects of School Financing on Local Opportunities

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  • Fabian Eckert

    (Yale)

  • Tatjana Kleineberg

    (Yale)

Abstract

Neighborhoods in the US differ substantially in the educational and economic opportunities that they offer to children who grow up in them. We develop and estimate a structural spatial equilibrium model of residential and education choice to study the effects of school financing policies on education outcomes, intergenerational mobility, and welfare at the local and aggregate level. Our model generates persistent effects of children's neighborhoods on adult outcomes through local labor market access and local human capital formation. Local school funding is an important component of the latter. Schools are funded through income taxation and local rent taxation. We estimate the model using a range of US Census datasets by fitting model predictions to regional data of the actual US geography. We use the estimated model to study the effects of counterfactual policy interventions, in particular, the equalization of school funding across all students and the use of rent subsidies. We find that general equilibrium responses in local prices and local skill compositions significantly dampen the partial equilibrium effects of the policy, so that effects on education outcomes and intergenerational mobility are positive but only moderate in general equilibrium.

Suggested Citation

  • Fabian Eckert & Tatjana Kleineberg, 2019. "Can We Save the American Dream? A Dynamic General Equilibrium Analysis of the Effects of School Financing on Local Opportunities," 2019 Meeting Papers 1197, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1197
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    References listed on IDEAS

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    1. Can We Save the American Dream? A Dynamic General Equilibrium Analysis of the Effects of School Financing on Local Opportunities
      by Christian Zimmermann in NEP-DGE blog on 2019-10-19 23:10:06

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    2. Victoria Gregory & Julian Kozlowski & Hannah Rubinton, 2022. "The Impact of Racial Segregation on College Attainment in Spatial Equilibrium," Working Papers 2022-036, Federal Reserve Bank of St. Louis, revised 27 Nov 2024.
    3. Francesco Agostinelli & Matthias Doepke & Giuseppe Sorrenti & Fabrizio Zilibotti, 2020. "It Takes a Village: The Economics of Parenting with Neighborhood and Peer Effects," Cowles Foundation Discussion Papers 2228, Cowles Foundation for Research in Economics, Yale University.
    4. Matthias Doepke & Giuseppe Sorrenti & Fabrizio Zilibotti, 2019. "The Economics of Parenting," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 55-84, August.
    5. Agostinelli, Francesco & Doepke, Matthias & Sorrenti, Giuseppe & Zilibotti, Fabrizio, 2022. "When the great equalizer shuts down: Schools, peers, and parents in pandemic times," Journal of Public Economics, Elsevier, vol. 206(C).
    6. Veronica Guerrieri & Alessandra Fogli, 2017. "The End of the American Dream? Inequality and Segregation in US cities," 2017 Meeting Papers 1309, Society for Economic Dynamics.

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