Matching under school and home bundling
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Matching under school and home bundling Xiaokuai Shao1
© Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The consumption of urban public resources—for example public schooling—is typically geographically bundled with home locations. When households differ in valuations of housing and in student abilities, the positive and assortative matches between school qualities and student abilities sometimes fail to be achieved by the housing market equilibrium, resulting in a misallocation in education. We propose a mechanism that improves school matches by making the property tax imposed on the high-quality house–school bundle deductible conditional on school performance. Conditional deductibility induces a transaction of houses that improves school matches at the cost of a distortion in housing consumption, and we show that: (1) a small and positive tax is strictly welfare-improving; (2) such tax is Pigouvian corrective in terms of alleviating budget constraint; and (3) a lower degree of interjurisdictional differentiation in housing enhances the welfare effects of tax. Keywords Walrasian equilibrium · House–school bundling · Two-dimensional assortative matches · Optimal tax · Budget constraints JEL Classification D61 · D51 · H21 · I3 · R13
1 Introduction Due to geographical constraints, getting access to public utilities is typically bundled with home locations, e.g., across the globe, attending public (primary) schools is subjected to the zoning restrictions. The rule of school assignments in China, in particular, imposes an additional constraint on prospective students—local homeownership is required to attend nearby schools (Chan et al. 2020; Hu et al. 2014; Zheng et al. 2016). The “neighborhood school policy” in China, initially established in 1986, was enhanced in 2014—since then entrance examinations were strictly prohibited in admissions not only to primary schools, but also to secondary schools. * Xiaokuai Shao [email protected] 1
International Business School, Beijing Foreign Studies University, Beijing 100089, China
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When spoken about in the press, the official motivation typically given for favoring zoning/homeownership instead of examinations is to provide families with “fair” access to education (Li and Ben 2013), and it is sometimes argued that attending nearby schools reduces costs from transportation (Cushman 1951). However, combining the spatial heterogeneity in school qualities, the policy drives an intensified capitalization of school values into home prices, which further prevents talented students with high potential from getting access to better education, if they “unfortunately” are born in families who are less competitive in bidding for houses near popular schools (Zan et al. 2014). In other words, by tying school assignments with local homeownership, the accessibilities of public schooling and the associated educational outcome turn out to be indirectly determined by the competition among parents in the housing market—
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