The Value of School Facility Investments: Evidence from a Dynamic Regression Discontinuity Design
Rothstein, Jesse with Stephanie Cellini and Fernando Ferreira. Quarterly Journal of Economics. 125 (1), February 2010, p.p. 215-261.
Despite extensive public infrastructure spending, surprisingly little is known
about its economic return. In this paper, we estimate the value of school facility
investments using housing markets: standard models of local public goods imply
that school districts should spend up to the point where marginal increases would
have zero effect on local housing prices. Our research design isolates exogenous
variation in investments by comparing school districts where referenda on bond
issues targeted to fund capital expenditures passed and failed by narrow margins. We extend this traditional regression discontinuity approach to identify the dynamic treatment effects of bond authorization on local housing prices, student
achievement, and district composition. Our results indicate that California school
districts underinvest in school facilities: passing a referendum causes immediate, sizable increases in home prices, implying a willingness to pay on the part of marginal homebuyers of $1.50 or more for each $1 of capital spending. These
effects do not appear to be driven by changes in the income or racial composition of
homeowners, and the impact on test scores appears to explain only a small portion
of the total housing price effect.