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Alternative Education Finance Strategies

Differences in the formulas states use to fund education account for some of the equity issues in education finance. But the implicit pricing of public school access through housing markets plays a much larger role by rationing valuable nonfinancial inputs into schools that are disproportionately attended by children from higher-income households. This paper then considers two broad categories of state finance policies: those that channel funds to traditional local public schools and those that instead channel such funds to parents or school entrepreneurs. Both types of policies can be targeted in various ways to address equity concerns related to financial school inputs, but the latter allows for a greater severing of the link between school access and housing markets and thus opens a way for addressing inequities in nonfinancial input allocations. The paper concludes that state policies should aim at a greater balance between the two types of state aid.

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