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Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan
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Abstract
School finance schemes control the allocation of 370billionayearintheUnitedStates,buttheireconomicsarepoorlyunderstood.Weexamineanilluminatingexample:Texas′RobinHood′scheme,whichwasenactedin1994,allocatesabout30 billion a year, and is currently collapsing and likely to be abandoned. We show that the collapse was predictable. Robin Hood's design causes substantial negative capitalization, shrinking its own tax base. It relies only slightly on relatively efficient (pseudo lump sum) redistibution and heavily on high marginal tax rates. Although Robin Hood reduced the spending gap between Texas' property-poor and property-rich districts by 500perpupil,itdestroyedabout27,000 per pupil in property wealth. The magnitude of this loss is important: if the state had efficiently confiscated the same wealth and invested it, it would generate sufficient annual income to make all Texas schools spend at a high leval. The Robin Hood scheme is stringent but not bizarre: other states' systdms share its features to some degree. We provide estimates of the effects of school finance system parameters, which policy makers could use to design systems that are more efficient and stable.