Are Efficiency and Equity in School Finance Substitutes or Complements?

Abstract

This paper analyzes cases made for local and centralized school finance and policies such as vouchers, categorical aid, and equalization aid. An ideal system of school finance would achieve efficiency and equity by ensuring every person invests in the amount of schooling that is socially optimal for him. The author evaluates the empirical evidence for, and the merit and importance of, arguments for each policy. She concludes that the theoretical arguments for centralized finance not only exaggerate the efficiency-equity tradeoff but actually make better arguments for a system combining local school finance with categorical aid and means-tested vouchers.

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