Abstract
We identify commonly-available instrumental variables for housing hedonics for proficiency tests, school spending, and property taxes. We estimate the hedonic simultaneously with the reasons a person bought his house. We find larger housing value elasticities than previous studies: 0.47 for test scores, 1.07 for expenditures per pupil, and -0.37 for property taxes. We suggest schooling expenditures acts as a signaling mechanism. We find that people who use private schools and think their private school is excellent pay an additional 10% house price premium; this finding, along with capitalization of private school test scores, supports the theory of the marginal consumer.
Highlights
Dozens of articles on the capitalization of public schooling services into house prices have been published even since 1999 (Nguyen-Hoang and Yinger [1]), showing that the topic is as relevant as ever, and that there is still widespread disagreement on the proper empirical technique to use
It (1) finds new instruments for proficiency test scores and property taxes; (2) estimates the house price hedonic in a system of equations that includes the public services that most attracted people to their houses; (3) addresses endogenous sorting by including individual buyer characteristics; (4) proposes that expenditures are capitalized into house prices not for their ability to enhance education but as a signaling mechanism; and (5) examines whether people’s attitudes toward their nearest public and private schools—as well as their use of them—affect their bids for housing
Hilber and Mayer [2] inspire the use of population density to instrument for expenditures per pupil, which is an additional school quality measure.i Instrumenting for these three variables more than doubles the elasticity of each, so that we find the elasticity of house price with respect to proficiency tests is 0.47, and corresponding values for expenditures per pupil of 1.07 and property taxes of -0.37
Summary
Dozens of articles on the capitalization of public schooling services into house prices have been published even since 1999 (Nguyen-Hoang and Yinger [1]), showing that the topic is as relevant as ever, and that there is still widespread disagreement on the proper empirical technique to use. The current study contributes to the literature in five main ways It (1) finds new instruments for proficiency test scores and property taxes; (2) estimates the house price hedonic in a system of equations that includes the public services that most attracted people to their houses; (3) addresses endogenous sorting by including individual buyer characteristics; (4) proposes that expenditures are capitalized into house prices not for their ability to enhance education but as a signaling mechanism; and (5) examines whether people’s attitudes toward their nearest public and private schools—as well as their use of them—affect their bids for housing. This suggests the theory of the marginal consumer may hold true for our sample of Ohio homebuyers
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