The Efficiency-Equity Tradeoff in School Aid: How Efficiency Targeting in Lump-Sum Aid Generates Unexpected Effects

摘要

Formulas of state aid to local school districts have recently incorporated efficiency targeting, which incentivizes school districts to enhance the efficiency of school administration and teaching. This paper shows that efficiency targeting in lump-sum foundation aid fails to make school districts more efficient than typical foundation aid does. Efficiency targeting instead improves fiscal equity across school districts under almost all scenarios. This paper also clarifies why these unexpected equity effects take place and suggests feasible and implementable alternatives to obtain the efficiency improvement from efficiency targeting.