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Creator: Eckert, Fabian and Kleineberg, Tatjana Series: Institute working paper (Federal Reserve Bank of Minneapolis. Opportunity and Inclusive Growth Institute) Number: 047 Abstract: Children's education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children's education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. We estimate the model with US county-level data and study the effects of a school funding equalization on education outcomes and social mobility. The reform's direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality.
Keyword: Spatial economics, Intergenerational mobility, Education reform, Regional labor markets, Equality of opportunity, and School access Subject (JEL): I28 - Education: Government Policy, R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics, I24 - Education and Inequality, E62 - Fiscal Policy, R12 - Size and Spatial Distributions of Regional Economic Activity, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity