NCPA - National Center for Policy Analysis


October 21, 2004

Texas' school finance scheme, which shifts money from rich to poor school districts -- aptly named "Robin Hood" -- was enacted in 1994 and allocates about $30 billion a year. In less than a decade, however, the system is approaching collapse, say economists Caroline M. Hoxby and Ilyana Kuziemko.

Furthermore, say the economists, the collapse was predictable:

  • Robin Hood's design causes substantial negative capitalization, shrinking its own tax base.
  • It relies only slightly on relatively efficient redistribution and heavily on high marginal tax rates.
  • Although Robin Hood reduced the spending gap between Texas' property-poor and property-rich districts by $500 per pupil, it destroyed about $27,000 per pupil in property wealth.

The magnitude of this loss is important, say the economists. If the state had efficiently confiscated the same wealth and invested it, it would generate sufficient annual income to make all Texas schools spend at a high level.

The economists note that their critique is not a condemnation of redistributing school funds. Rather, it's a brief for bringing well-established principles of efficient taxation to bear on school finance. Transfers, Hoxby argues, should be funded through a statewide tax, while local taxes pay for local amenities.

But even local taxes could be more efficient. Instead of confiscating 100 percent of everything above a certain property-value threshold, says Kuziemko, the state could take a much smaller percentage of the whole tax base.

What was the fundamental reason for the failure, according to Hoxby and Kuziemko... ''Lawyers, not economists, designed the system.''

Source: Caroline M. Hoxby and Ilyana Kuziemko, "Robin Hood and His Not-So-Merry Plan: Capitalization and the Self-Destruction of Texas' School Finance Equalization Plan," National Bureau of Economic Research, September 2004.


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