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Schools and location: Tiebout, Alonso, and governmental finance policy

Eric A. Hanushek, Kuzey Yilmaz
Published Date: 
December 2013
Journal of Public Economic Theory
pp. 829-855

Many discussions of school finance policy fail to consider how households respond to policies that change the attractiveness of different residential locations. We develop a general equilibrium model that incorporates workplace choice, residential choice, and political choice of tax and expenditure levels. Importantly, we consider multiple workplaces, a fundamental feature of today's metropolitan landscape. This basic model permits investigating how accessibility and public goods interact in a metropolitan area. The model is used to analyze two conventional policy initiatives: school district consolidation and district power equalization. The surprising conclusion is that school quality and welfare can fall for all families when these restrictions on choice are introduced.