Joydeep Roy

Measuring the Effect of Foreign Aidon Growth and Poverty Reduction or the Pitfalls of Interaction Variables

Regressions in a number of recent papers written by staff members of the World Bank and the IMF rely on an interaction variable (IAV) to establish the effects of foreign aid on economic growth or the reduction of poverty. The common assumption in these papers is that if the coefficient of this IAV is statistically significant, then both of its components have a significant effect on the dependent variable. That assumption is not justified in its generality, and this paper develops two techniques that show a high probability that in at least two of the three studies analyzed one of the components of the IAV may not have a significant effect.

The Economics of Parental Choice

One of the most important decisions that parents make regarding their children is the choice of their schools. This article reviews the economic aspects of parental choice of schools. We analyze the basic economic theory underlying a family’s choice of schools and then examine various dimensions of it, particularly as it relates to the organization of schools and provision of education in the real world. In the process, we also discuss the role played by school demographics, peers, academic performance, school location, school atmosphere, and the availability of information in parental choice decisions and highlight contributions that have significantly increased our understanding of this important issue.

Housing markets and residential segregation: Impacts of the Michigan school finance reform on inter- and intra-district sorting

Local financing of public schools in the U.S. leads to a bundling of two distinct choices – residential choice and school choice – and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A led to a decline in neighborhood sorting within education markets, as measured by changes in the value of housing stock and several socioeconomic indicators. We also find that the reform affected the dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest spending school districts, while decreasing the same in the highest spending districts. However, there is a continued high demand for residence in the highest spending communities. These findings are robust to various alternative definitions of “education market”, and survive several sensitivity checks. These spatial segregation patterns are not replicated in neighboring Ohio that did not face similar school finance equalization.

Did Cuts in State Aid During the Great Recession Lead to Changes in Local Property Taxes

During the Great Recession and its aftermath, state and local governments’ revenue streams dried up due to diminished taxes. Budget cuts affected many aspects of government; in this paper, we investigate whether (and how) local school districts modified their funding and taxing decisions in response to changes in state aid in the post-recession period. Using detailed district-level panel data from New York and a fixed effects as well as an instrumental variables strategy, we find strong evidence that school districts did indeed respond to state aid cuts in the post-recession period by countering the cuts. In comparison with the pre-recession period, a unit decrease in state aid was associated with a relative increase in local funding per pupil. To further probe the school district role, we explore whether the property tax rate, which districts set each year in response to budgetary needs, also responded to state aid cuts. Indeed, we find that relative to the pre-recession period, the post-recession period was characterized by a strong negative relationship between the property tax rate and state aid per pupil. In other words, after the recession a unit decrease in state aid was associated with a relative increase in the property tax rate in the post-recession period (in comparison with the pre-recession period).

Housing Markets and Residential Segregation: Impacts of the Michigan School Finance Reform on Inter- and Intra-District Sorting

Local financing of public schools in the U.S. leads to a bundling of two distinct choices – residential choice and school choice – and has been argued to increase the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can in principle weaken this link between housing choice and choice of schools. In this paper, we study the impacts of the Michigan school finance reform of 1994 (Proposal A) on spatial segregation. The reform was a state initiative intended to equalize per pupil expenditures between Michigan school districts and reduce the role of local financing. We find that Proposal A led to a decline in neighborhood sorting within education markets, as measured by changes in the value of housing stock and several socioeconomic indicators. We also find that the reform affected the dispersion of incomes and educational attainment within school districts, increasing within-district heterogeneity in the lowest spending school districts, while decreasing the same in the highest spending districts. However, there is a continued high demand for residence in the highest spending communities. These findings are robust to various alternative definitions of “education market”, and survive several sensitivity checks. These spatial segregation patterns are not replicated in neighboring Ohio that did not face similar school finance equalization.

Effect of Redrawing of Political Boundaries on Voting Patterns: Evidence from State Reorganization in India

This paper analyzes the effect of a redrawing of political boundaries on voting patterns and investigates whether it leads to closer conformity of an electorates voting patterns with its political preferences. We study these issues in the context of a reorganization of states in India. In 2000, Madhya Pradesh, the biggest state in India before the reorganization, was subdivided into Madhya Pradesh and Chhattisgarh, the latter accounting for less than one-fourth of the electorate of undivided Madhya Pradesh. Using socioeconomic composition and traditional voting patterns, we argue that there are differences in political preferences between Madhya Pradesh and Chhattisgarh. Next, in the context of a theoretical model that captures some of the basic features of the electoral scenario of the two regions, we predict that before reorganization, the smaller region would vote strategically to elect representatives with preferences more closely aligned to those of the bigger region. Once Chhattisgarh became a separate state, however, this motive would no longer operate, and the voting distributions of the two regions would differ. Using detailed data on state elections in Madhya Pradesh and Chhattisgarh in 1993, 1998, and 2003 as well as a difference-in-differences estimation strategy, we find that voting patterns in the two regions were indeed very similar before reorganization but strikingly different afterwards, with a relative shift in Chhattisgarh toward its inherent political preferences. These findings are reasonably robust in that they continue to hold after controlling for other confounding factors and survive several sensitivity tests.

Effect of a School Finance Reform on Housing Stock and Residential Segregation: Evidence from Proposal A in Michigan

Local financing of public schools in the U.S. leads to a bundling of two distinct choices - residential choice and school choice - and increases the degree of socioeconomic segregation across school districts. A school finance reform can go a long way in weakening this link. In this paper I study the Michigan school finance reform of 1994 (Proposal A) which resulted in a comprehensive equalization of per pupil expenditures. Using panel data on Michigan K-12 districts and data from the decennial censuses I investigate whether the reform had any significant effects on spatial segregation. I find that Proposal A has been responsible for increases in housing stock and property values in the lowest spending school districts, and for improvements in several socioeconomic indicators, implying a decline is neighborhood sorting. However, there is continued high demand for residence in the highest spending communities, which points to the importance of neighborhood peer effects (‘local’ social capital).

Merit aid, student mobility, and the role of college selectivity

In this paper, we investigate the role of college selectivity in mobility decisions (both in-state and out-of-state) of freshmen students following Georgia’s HOPE scholarship program. How did HOPE affect the selectivity of colleges attended by Georgia’s freshmen students? Did it induce Georgia’s freshmen students who would have otherwise attended more selective out-of-state colleges to instead attend less selective in-state ones? Or was there movement to more selective ones, both in-state and out-of-state? Using student residency and enrollment data from IPEDS and selectivity data from Barron’s and Peterson’s, we find that in the aftermath of HOPE, Georgia freshmen attended relatively more selective colleges overall. Disaggregating further, we find that Georgia freshmen attending in-state colleges attended more selective ones. Georgia freshmen attending out-of-state colleges were also more likely to attend more selective colleges, most likely due to an increase in the reservation price to go to out-of-state colleges following HOPE. Our results are robust to a variety of sensitivity checks and have important policy implications. In particular, Peltzman had observed in his classic 1973 paper that in-kind subsidies can induce individuals to invest in less quality-adjusted human capital than they might otherwise. The fact that Georgia freshmen attended relatively more selective colleges in the post-HOPE period allays, to some extent, the concern that state merit aid programs can adversely affect long-term outcomes and human capital formation.

Effect of constraints on Tiebout competition: evidence from a school finance reform

ABSTRACT Effect of constraints on Tiebout competition: evidence from a school finance reform. Regional Studies. Michigans school finance reform significantly increased state aid to low-spending districts and placed restraints on the growth of spending in high-spending districts. It is noteworthy that there is no literature yet on the impact of such reforms on resource allocation by school districts. This study begins to fill this gap. It finds that the reform led the high-spending districts to allocate a lower share of their total expenditure to support services and a higher share to instruction (relative to the low-spending districts). To the extent that instructional expenditures are more productive and contribute to student achievement more than support services expenditures, these results suggest that the reform led to a relative increase in productivity in the high-spending districts.

Effect of Constraints on Tiebout Competition: Evidence from the Michigan School Finance Reform

In 1994, Michigan enacted a comprehensive school finance reform that not only significantly increased state aid to low-spending districts, but also placed significant limits on local discretion over school spending. These limits especially constrained the high-spending districts. This scenario affords us a unique opportunity to study the implications of such reforms on resource allocation, particularly as they differentially affected districts situated at different points of the pre-reform spending distribution. We find that the reform generally led to a negative effect on the growth of instructional expenditure and its share, as well as in teachers per pupil. But these declines were sharpest in the high-spending districts. Interestingly, while trends for shares of administration expenditure as well as administrators per pupil also showed across-the-board declines, these declines were actually the smallest for the high-spending districts. To the extent that instructional expenditures are more productive and contribute to student achievement more than administrative expenditures, these results suggest that loss of discretion acted as a disincentive for districts located throughout the spending distribution. Moreover, this disincentive effect was the strongest in the high-spending districts. These findings have important policy implications and suggest that school finance reforms (or other policies) that place significant restraints on local discretion can lead to unintended disincentive effects, which should be taken into account while devising policy.