Tiebout’s (1956) conceptual breakthrough was that taxpayers are mobile and as a result will choose the municipality that best meets their needs by moving to that location. His model successfully addressed the free rider problem that plagues governmental entities providing public goods and services such as public education. Indeed, taxpayers seem to decide where to live based largely on the quality of the local school district.
According to Tiebout (1956,) taxpayers reveal their preferences for their desired level of public goods and services by the decision they make concerning where they choose to live. Through such a decision making process (Baker, Green and Richards, 2008,) Tiebout’s model “could lead to an optimal allocation of public services where no one person in the system could be made better off without making someone else worse off.” According to Tiebout (1956,) “The greater the number of communities and the greater the variance among them, the closer the consumer will come to fully realizing his preference position.”
Tiebout (1956) concluded that a taxpayer’s choice of municipalities and, therefore, school districts, reflects a private sector competitive market model. In discussing this model for school choice, Baker, Green and Richards (2008) report “Tiebout proposes that local, rather than centralized, government financing of public services could result in a form of competitive marketplace that would yield more optimal pricing of public goods through local tax policy and more appropriate alignment of consumer preferences and the quality of public goods.” Tiebout (1956) explains this difference, “At the central level the preferences of the consumer-voter are given, and the government tries to adjust to the pattern of these preferences, whereas at the local level various governments have their revenue and expenditure patterns more or less set.” Taxpayers, therefore, will choose the district that best meets their needs when choosing among school districts of varying levels of educational quality.
Today, the Tieboutian choice is manifested in the difference between local funding versus state or federal funding and the corresponding state or federal control that comes along with it. The fundamental problem with centralized funding, whether state or federal is that it leads to a one-size-fits-all approach for education but one that fits no district. Baker, Green and Richards (2008) explain, “The local property tax empowers local voters to express what they want for their local public schools.” But “when property taxes become statewide taxes, the political advantages of empowering local citizens and promoting competition and sorting among jurisdictions is lost.” This mass standardization of policy often leads to state and federal funding guidelines that are incongruous with the needs and priorities of local school districts.
The specific needs of individual school districts vary to such a large degree that they render uniform state and federal policy formulas inadequate. Instead, public school districts need a mass customization of educational funding, control and policy that can only derive from local funding and governance. Oates (1972) supports the notion that public education should be provided at the lowest level. Kenny (1982) also argues for the provision of public education by local school districts. Because there is no reliable connection between state and federal policy makers and the local provision of education, accountability requires local decision making.
A reduction in local school district control over the levying and allocating of property taxes decreases accountability and adversely affects public school quality. Because reductions of property tax revenues whether through state imposed limitations or via the substitution of state or federal funds reduces the level of local investment in the school district, the stake held by local taxpayers is similarly reduced. Fischel (2001) explains this using taxpayers without children in the public schools, “At the local level, they are willing to support, or at least not oppose, high levels of spending because better schools add to the value of their homes. At the state level, voters without children do not perceive such an offsetting benefit to their taxes.” Having a lowered sense of ownership in their schools, taxpayers become more complacent as the proportion of state and federal funding increases. This causes a corresponding reduction in the level of accountability required by the stakeholders and the quality of their public schools’ education declines as a result.
Fischel (2001) explains that taxpayers resemble investors as they want their major asset, their home, to appreciate in value. Home owners have a vested interest in the success of their local schools because the credit rating of a school district’s host municipality is largely dependent on the financial soundness and credit worthiness of its schools. Indeed, the higher is a municipality’s credit rating the lower is its debt service expense.
Taxpayers hold local schools accountable not just to improve the quality of education but more importantly to offset risks to their property’s value which can not be easily diversified. The more accountability a local school district provides, the more local taxpayers support the public funding of public education. Local school districts, therefore, will efficiently provide public education as a result of taxpayers’ exercising their Tieboutian choice.
References
Baker, B. D., Green, P., & Richards, C. E. (2008). Financing Education Systems, Upper Saddle River, New Jersey: Pearson Education, Inc.
Fischel, W., (2001) The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies, Cambridge, Massachusetts: Harvard University Press.
Kenny, L. W., (1982) Economies of scale in schooling, Economics of Education Review, 2:1-24.
Oates, W. E., (1972) Fiscal Federalism, New York: Harcourt Brace Jovanovich.
Tiebout, C. M., (1956) A Pure Theory of Local Expenditures, The Journal of Political Economy, 64, 416-424.
