Centralization, Fiscal Federalism and Private School Attendance

This paper uses a computational general equilibrium model to analyze the impact of public school finance regimes on rates of private school attendance. It is shown that, when viewed in such a general equilibrium context, state intervention in locally financed systems can have somewhat unexpected and counterintuitive effects on the level of private school attendance. In particular, the common perception that centralization of public school finance will necessarily lead to greater private school attendance is no longer correct when general equilibrium forces are taken into account even when that centralization involves an extreme equalization of the kind observed in California. Furthermore, if centralization occurs through less dramatic means that allow for some remaining discretion on the part of local districts, declines in private school attendance become much more unambiguous and pronounced. These results then weaken the speculation that low exit rates to private schools in centralizing states imply that general public school quality does not drop as a result of such centralization.