Working Paper

Why do households without children support local public schools? linking house price capitalization to school spending

Abstract: While residents receive similar benefits from many local public expenditures, only about one-third of all households have children in the public schools. In this paper the authors argue that capitalization of school spending into house prices can encourage residents to support spending on schools, even if the residents themselves will never have children in the schools. To examine this hypothesis, the authors take advantage of differences across communities in the extent of house price capitalization based on the availability of land or population density. They show that fiscal variables and amenities are capitalized to a much greater extent in Massachusetts cities and towns with little available land and that these localities also spend more on schools. Next, the authors use data from school districts in 49 states to show that per pupil spending is positively related to population density, a proxy for the availability of land. Consistent with a model tying house price capitalization to school spending, the authors show that the positive correlation between density and spending persists only in locations with high homeownership rates. Communities with a higher percentage of residents above 65 years old have increased school expenditures only in places with high population densities, and this correlation grows for the percentage of elderly above 75 or 85 years old who have a shorter expected duration in their house. The positive relationship between percentage elderly and school spending is confined to central cities and suburbs of large metropolitan areas and does not exist in places where land for new construction may be easier to obtain. These results support models in which house price capitalization encourages more efficient provision of public services and provide an explanation for why some elderly residents might support local spending on schools.

Keywords: Education;

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2002

Number: 02-10