Cooper 9601143 This project explores the role of redistributive school financing in mitigating the persistence of income inequality across generations. Previous empirical and theoretical work has found that both family and neighborhood characteristics are important determinants of a child's future income. This work has not addressed the interactions between communities in human capital accumulation, however. The existence of state funding of public schools suggests that even in the absence of court mandates for redistribution, some transfers of human capital expenditure do take place. This project takes both a theoretical and an empirical approach to the question of the extent to which redistribution is used and the effect it has on the persistence of income inequality across generations. The proposed research begins with a theoretical model which suggests circumstances under which redistribution of human capital investment from wealthy neighborhoods to poor neighborhoods can take place voluntarily. This model not only describes how we can observe redistributive human capital investment, but also suggests how we could bring about more voluntary redistribution by strengthening the spillovers in productivity across workers of different skill levels. In addition, this proposal describes empirical work which assesses the role of human capital redistribution in reducing the transmission of poverty across generations. The theoretical model suggests that children who grow up in poor communities and do not receive redistributive human capital investment are more likely to be poor as adults than are children in comparably poor communities that do receive redistribution of human capital expenditure. Preliminary empirical results suggest that there is substantial variation across communities in the intergenerational persistence of income inequality. In particular, the persistence of inequality across generations is greater for the poor and the wealthy than for those of middle incomes. This project extends this analysis to study explicitly the role for redistributive human capital expenditures in the dynamics of income inequality across generations. Preliminary results in this area suggest a qualitatively important role for redistribution in reducing the intergenerational persistence of income inequality.
