Local public choice of school spending: disaggregating the demand function for educational services

Abstract

The determinants of school spending are investigated using a disaggregated demand model augmented to include political factors. High school spending by county governments is disaggregated to identify the sources of variation in teacher–student ratio, non-wage spending per student, and student enrollment. The disaggregation throws new light on the role of cost factors in explaining the expansion of educational services. High school spending is shown to be highly inelastic to county revenue and major cost factors. The spending decision is analyzed as an example of the common pool problem in distributive politics. Schools offer benefits to each municipality, and municipalities fight for new schools since the costs are shared. The political decision implies a balancing between this spending pressure and the coordinated interests of the county. Political strength, measured by the party fragmentation of the council, is shown to hold down costs and allow for more student enrollment. On the other hand, the spending pressure measured by the average size of the municipalities in the county, influences all three spending components, and the effects depend on the political strength.