Heterogeneity in Financial Incentives for High and Low Income School Districts

Students who attend schools in low income communities have significantly lower achievement and make smaller gains than their counterparts in high income communities. Explanations for this achievement gap are generally based on constraints in financial resources. However, when equalizing financial resources fails to close the gap in practice, the residual is attributed to student aptitude and family spillovers. This paper explicitly tests for the presence of heterogeneity in school district incentives as an alternative to these explanations. A rich data set of Ohio house sales, characteristics and construction quality is used to estimate the responsiveness of the property tax base to school quality across high and low income districts. Estimates indicate that house prices are more responsive to quality in high income suburban districts than in low income urban districts. This provides direct evidence that residents of high income districts are more willing and able to pay for education quality, which translates into stronger incentives for the districts that serve them.