Many states are under court-order to reduce local disparities in education spending. While a substantial body of literature suggests that these orders and the resulting school finance equalizations have increased the level and progressivity of state education spending, there is little evidence on the broader effects of such measures on the change in total resources available not only for schools, but for other local government programs as well. When states spend more on education, both state and local budget constraints change, which may affect both state and local spending and revenue decisions. We find that while mandated school finance equalizations increase both the level and progressivity of state spending on education, states finance the required increase in education spending in part by reducing their aid to localities for other programs. Local governments, in turn, respond to the increases in state taxation and spending by reducing both their own revenue-raising and their own spending on education and on other programs. Thus, while state education aid does increase total spending on education, it does so at the expense of drawing resources away from spending on programs like public welfare, highways, and hospitals. These findings provide insight not only into the ultimate incidence of mandated increases in state education aid, but more broadly into the effectiveness of using earmarked funds to achieve redistribution.

One of the federal government's main elementary and secondary education programs is Title 1, which allocates money for compensatory education to school districts based on child poverty. I use sharp changes in per-pupil grant amounts surrounding the release of decennial census data to identify effects of Title I on state and local education revenue, and how much the program ultimately increases spending by recipient school districts. I find that state and local revenue efforts initially are unaffected by Title I changes, but that local governments substantially and significantly crowd out changes in Title I within in a 3-year period. (C) 2003 Elsevier B.V. All rights reserved.

The quality of care received by Medicare beneficiaries varies across areas. We find that states with higher Medicare spending have lower-quality care. This negative relationship may be driven by the use of intensive, costly care that crowds out the use of more effective care. One mechanism for this trade-off may be the mix of the provider workforce: States with more general practitioners use more effective care and have lower spending, while those with more specialists have higher costs and lower quality. Improving the quality of beneficiaries’ care could be accomplished with more effective use of existing dollars.

Both the federal government and the states use intergovernmental grants to try to change the composition of local spending across different programs, as well as the distribution of resources across localities. Many states are now under court-order to use state education grants to reduce local disparities in education spending. While a substantial body of literature suggests that these court orders increase the level and progressivity of state education spending, there is little evidence on their broader effects on the total resources available not just for schools in low income districts, but for other programs across all localities. We find that states finance the required increase in education spending in part by reducing their aid to localities for other programs, particularly for wealthier districts. Thus, while court-ordered school finance equalizations do increase total state aid to localities for education, they do so at the expense of drawing state intergovernmental aid away from programs like public welfare, health, hospitals, and general services. These findings provide insight into the effectiveness of using earmarked funds to achieve redistribution.