It is shown that local provision of public education increases the human capital of school-age children and the value of the housing. The second effect, called capitalization, means that the higher the expenditure in local public education, the higher the value of the housings. In a two-community model, we show that when capitalization is sufficiently strong, the marginal benefit from the higher tax, capitalized into the housing price, allows childless households to vote for a positive tax. In particular, low income childless households vote for a tax raise when capitalization is strong, whereas high income childless supports a higher tax when capitalization is weak. The median income voter is never pivotal because "ends with the middle" coalitions arise; high income households (with and without a child) make coalition with middle income class with a child, whereas low income households (with and without a child) make coalition with childless middle income class. We find that the income of the childless median voter is higher than the median income, whereas the median voter with a child has income lower than the median. Thus, the equilibrium tax preferred by the median voter (childless or not), is higher than the tax preferred by the childless median income voter and lower than the tax preferred by the median income voter with a child. This result implies that it is not possible to exclude voting equilibria in which the tax of the childless median voter is higher than the tax of the median voter with a child. When capitalization disappears, only households with a child vote for a positive tax, coalitions among the voters with and without a child arise to block public provision of local education.

Over the next few decades, the share of childless households (mainly elderly) is rising. As a direct consequence, it is less and less likely that the pivotal voter at the local level has children at school age. To the extent that funding of local public education is determined by local voters (as in many US states), the question then becomes whether house price capitalization may provide mechanism to encourage childless households to support local public education. The answer provided is"yes, but only if the expected duration of childless households in the property is short." This is an important issue because it determines whether local public education is possibly underprovided from a welfare point of view. We show that, when the households are not likely to sell the house, they are unwilling to vote in favor of funding for local public education. If the likelihood of relocation/house sale on the other hand is high, then house price capitalization provides a sufficient incentive to vote for public spending on education.

This result is in line with empirical evidence. The pioneer in capitalization study is Oates (1969). He analyzes a1960 sample of the northern New Jersey communities and finds that the value of housing increases in the public expenditure of the school system. Sonstelie and Portney (1980), Heinberg and Oates (1970), Orr (1968) and Hamilton (1979) confirm Oates's results of the capitalization in terms of school quality and per pupil expenditure. Benson and O'Halloran (1987) find that childless voters in California support school spending because of its positive effect on their property's value. Brunner and Balsdon (2004) find that in California, elderly generally vote to decrease the state spending but are much more willing to support local spending. Hilber and Mayer (2006) show that the older the elderly are, the stronger is the positive link between the share of elderly and local public spending on schools, i.e., more likely they vote in favor of funding for local public education. More recently, empirical evidence in Fletcher and Kenny (2008) confirms that an increasing share of elderly results in a very small drop in school spending.

As in Brueckner and Joo (1991), we allow the capitalization effect to run through the sale of the housing, within the context in which public school is locally provided (at community level). A two period model is considered analyzing a metropolitan area composed of two communities whose boundaries are exogenously fixed. The area is inhabited by a continuum of households both with and without a child. The public education is provided by the local government through a head tax set by a majority voting. In the first period, the households vote on the tax and send their child only to the school belonging to the community where they live. Since, it is assumed that voting takes place only once, the tax remains fixed over the two periods. In the second period, with a certain probability the households must leave and resell their housing. New households come into the area, buy housing from the leaving households and sort into the communities. In this model, the capitalization effect means that the reselling price is higher the higher is the tax decided in the first period. Our analysis of the voting equilibrium shows that when capitalization is strong, low income childless voters are more willing to bear a tax rise, whereas high income childless voters support a higher tax only if they can vote on a range of taxes sufficiently high. When capitalization is sufficiently weak, only high income childless voters prefer a higher tax.

Public Finance Journal, Local Public Education, Childless Voting, Capitalization, Childless Households, House Price Capitalization, New Jersey Communities, Local Government, theoretical models, Housing Markets, Model Capitalization.