Tuesday, May 9, 2017
Zachary D. Liscow (Yale), Do Court Mandates Change the Distribution of Taxes and Spending? Evidence from School Finance Litigation:
Little is known about whether court mandates ultimately affect the distribution of taxes and spending or whether legislatures offset the distributional consequences of those court orders with other changes. To offer insight into this question, I use an event-study methodology to show how state revenues and expenditures respond to court orders to increase funding for schools for low-income students.
The court orders are financed almost entirely through increases in taxes, and there is little evidence of offsetting behavior by the legislature. State income tax changes are broad-based across the income distribution and do not target tax filers with children. Thus, since the main beneficiaries of the school spending do not pay a disproportionate share of the costs, advocates for school finance reform are effective at transferring resources to poor families. The results suggest that welfare analysis of these legal rules should take into account not only efficiency but also distribution.