International Tax and Public Finance

, Volume 15, Issue 3, pp 338–352 | Cite as

Central versus local education finance: a political economy approach

  • Rainald Borck


This paper models voters’ preferences over central versus local education policies when there are private alternatives. Education is financed by income taxes and individuals are mobile between communities. Public education levels are chosen by majority vote. Contrary to conventional wisdom, centralisation may benefit the rich and poor, while the middle class prefer decentralised education. The model is also extended to include peer effects. Peer effects increase the support for central school finance, even in the community with good public schools.


Education Centralisation Private schools Majority voting 


I22 H72 D72 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alesina, A., & Spolaore, E. (1997). On the number and size of nations. Quarterly Journal of Economics, 112, 1027–1056. CrossRefGoogle Scholar
  2. Bearse, P., Glomm, G., & Ravikumar, B. (2001). Education finance in a dynamic Tiebout economy. Mimeo. Google Scholar
  3. Bolton, P., & Roland, G. (1997). The breakup of nations: a political economy analysis. Quarterly Journal of Economics, 112, 1057–1090. CrossRefGoogle Scholar
  4. Borck, R. (1998). Centralization of public good supply with majority voting. FinanzArchiv, 55, 21–40. Google Scholar
  5. Cohen-Zada, D., & Justman, M. (2003). The political economy of school choice: linking theory and evidence. Journal of Urban Economics, 54(2), 277–308. CrossRefGoogle Scholar
  6. de Bartolome, C. A. M. (1990). Equilibrium and inefficiency in a community model with peer group effects. Journal of Political Economy, 98, 110–133. CrossRefGoogle Scholar
  7. Epple, D., & Romano, R. E. (1996). Ends against the middle: determining public service provision when there are private alternatives. Journal of Public Economics, 62, 297–325. CrossRefGoogle Scholar
  8. Epple, D., & Romano, R. E. (1998). Competition between private and public schools, vouchers, and peer-group effects. American Economic Review, 88, 33–62. Google Scholar
  9. Fernandez, R., & Rogerson, R. (1999). Education finance reform and investment in human capital: lessons from California. Journal of Public Economics, 74, 327–350. CrossRefGoogle Scholar
  10. Fernandez, R., & Rogerson, R. (2003). Equity and resources: an analysis of education finance systems. Journal of Political Economy, 111(4), 858–897. CrossRefGoogle Scholar
  11. Franc, C., & Abadie, L. (2004). Opting out of public insurance: is it socially desirable?. Geneva Papers on Risk and Insurance: Theory, 29, 115–136. CrossRefGoogle Scholar
  12. Gans, J. S., & Smart, M. (1996). Majority voting with single-crossing preferences. Journal of Public Economics, 59, 219–237. CrossRefGoogle Scholar
  13. Hansen, N. A., & Kessler, A. S. (2001). (Non)-existence of equilibria in multicommunity models. Journal of Urban Economics, 50, 418–435. CrossRefGoogle Scholar
  14. Jouvet, P.-A., Michel, P., & Pestieau, P. (2004). Public and private environmental spending: a political economy approach. CORE discussion paper 2004/68. Google Scholar
  15. Jürges, H., Schneider, K., & Büchel, F. (2005). The effect of central exit examinations on student achievement: quasi-experimental evidence from TIMSS Germany. Journal of the European Economic Association, 3, 1134–1155. CrossRefGoogle Scholar
  16. Nechyba, T. (2003a). School finance, spatial income segregation and the nature of communities. Journal of Urban Economics, 54, 61–88. CrossRefGoogle Scholar
  17. Nechyba, T. J. (1999). School finance induced migration and stratification patterns: the impact of private school vouchers. Journal of Public Economic Theory, 1, 5–50. CrossRefGoogle Scholar
  18. Nechyba, T. J. (2003b). Centralization, fiscal federalism, and private school attendance. International Economic Review, 44(1), 179–204. CrossRefGoogle Scholar
  19. OECD (2004). Education at a glance: OECD indicators. Paris: OECD. Google Scholar
  20. Solon, G. (1992). Intergenerational income mobility in the United States. American Economic Review, 82(3), 393–408. Google Scholar
  21. Stiglitz, J. E. (1974). The demand for education in public and private school systems. Journal of Public Economics, 3, 349–385. CrossRefGoogle Scholar
  22. Zimmerman, D. J. (1992). Regression toward mediocrity in economic stature. American Economic Review, 82(3), 409–429. Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of MunichMunichGermany

Personalised recommendations