Fiscal Federalism and Private School Attendance

Thomas J. Nechyba
 This paper was written in part while I was on  
leave the Hoover Institution whose generous support is gratefully  
acknowledged, as is support from the National Science Foundation (SBR- 9809269, SBR-9905706).
Duke University, Stanford University and NBER


Abstract
   

	This paper uses a computational general equilibrium model to analyze  
the impact of public school finance regimes on rates of private  school 
attendance. The simulations are derived from a three-community  model of low, 
middle and high income school districts (calibrated to  New Jersey data), 
where each school district is composed of multiple  types of neighborhoods 
that may vary in house quality as well as the  level of  neighborhood 
amenities and externalities. Households that  differ in both their income 
and in the ability level of their  children choose between school districts, 
between neighborhoods  within their school district, and between the local 
public school or  a menu of private school alternatives. Local public school 
quality  within a district is endogenously determined by a combination of the  
average peer quality of public school attending children as well as  
local property and state income tax supported spending. Financial  support 
(above a required state minimum) is set either by local  majority rule given 
particular state aid programs, or by state  majority rule under a fully state 
financed system. Finally, there  exists the potential for a private school 
market composed of  competitive schools that face production technologies 
similar to  those of public schools but that set tuition and admissions 
policies  to maximize profits. It is shown that, when viewed in this general  
equilibrium context, state intervention in locally financed systems  can 
have somewhat unexpected and counterintuitive effects of the  level of 
private school attendance.