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Title: Our Favorite Method of Redistribution: School Spending Equality, Income Equality, and Growth
Citation Type: Miscellaneous
Publication Year: 2003
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Abstract: Equalizing spending on the education of children from rich and poor families is one of the most popular methods of redistribution in the world. It is undoubtedly the method onwhich the U.S. primarily relies, given the relatively low level of social benefits in America. Redistributing through education is potentially very efficient compared toother methods of redistribution. This is because children from poor families are likely to underinvest in education, judging not only by social returns but even by private returns. Also, if implemented well, redistribution through education poses few incentive problems (parents would not readily make themselves poorer to obtain more school aid).In short, redistribution through education could not only suppress income inequality, but could potentially raise growth. Currently, support for these hypotheses is based solely on calibration exercises. In this paper, I directly test whether U.S. states that practiced more redistribution through education ended up producing adults whose incomes were less unequal and faster growing. I exploit substantial within-state variation in states' school finance policies. Owing to rather arbitrary implementation of state SupremeCourt judgements, the changes in the redistributive consequences of these policies are relatively uncorrelated with changes in the states' income and education distributions. I find partial support for the hypothesis that redistribution through education reduces income inequality among adults. I do not find support for the hypothesis that it raises income growth. Because the U.S. relies so heavily on redistribution through education,weak effects are problematic and suggest that understanding where the method "breaks down" is important.
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Authors: Hoxby, Caroline M.
Publisher: Harvard University
Data Collections: IPUMS USA
Topics: Education, Other
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