House Prices and School Finances

Abstract

In this paper, we examine the effects of house prices on public school finances including tax revenue and expenditures. We find an elasticity of school district revenue with respect to house price growth of 0.2 and a similar elasticity for expenditures. Elasticities for expenditures, however, are much more volatile and correlated with the business cycle. During the Great Recession, the Federal Government acted as a social safety net for local schools. Our results also indicate that there are positive and statistically significant elasticities for teacher salaries with respect to house prices. These elasticities were largest during the Great Recession and the elasticities are even larger for teacher benefits. Findings further suggest that elasticities for school administrator salaries are similar to (and not statistically different from) elasticities for teacher salaries. Elasticities for administrator salaries are smaller (and thus less responsive) than elasticities for teacher benefits.