Fiscal Monitoring, School District Outcomes, and Residential Choice

Under the canonical model of local political economy, taxpayers vote with their feet to find the community that provides the optimal bundle of taxes and public goods (Tiebout, 1956). One common objection to this model is that taxpayers lack perfect information about their choice sets, and consequently rely on heuristics or third-party rating agencies. This paper exploits New York state’s fiscal monitoring program to examine the effect that quality labels have on school district enrollment and outcomes. Taxpayers may be especially sensitive to labels providing information about the management of school districts, as studies have shown that parents of school-age children pay close attention to information on school quality. Using a regression discontinuity design, I examine the effect of fiscal stress and "environmental" stress labels on property values, school enrollment, demographics, and test scores. While fiscal stress labels have no effect, environmental stress labels – indicating social, economic, and demographic pressures, such as a high percentage of disadvantaged students – cause enrollment and property values to decline, especially in wealthier districts. Taxpayers are more sensitive to demographic and economic indicators of school quality than to fiscal indicators.