School Finance Equalization Increases Intergenerational Mobility

This paper estimates the causal effect of equalizing revenues across school districts on students’ intergenerational mobility. I exploit cohort differences in exposure to equalization generated by state-level reforms. To address the endogeneity of postreform revenues due to household sorting after a reform, I use a simulated-instruments approach that uses newly collected data on states’ funding formulas to simulate revenues without sorting. I find that equalization has a large effect on the mobility of low-income students. Reductions in input gaps between low-income and high-income districts are likely channels behind this effect.