A model of local demand for education

A careful modeling of the spending behavior of local school districts in New Jersey is presented. The theoretical model relies on the common hypothesis of political competition leading to a median outcome as well as the assumption that school superintendents act as budget maximizers. The model is estimated for a sample of 177 school districts under three different aid formulas. Pooling of the cross sections suggests that the response of school expenditures to changes in variables other than those associated with school aid parameters has remained constant over time. The results are discussed in the context of recent theories regarding the effect of intergovernmental aid on the level of public expenditure.