Despite extensive public infrastructure spending, surprisingly little is
known about its economic return. In this paper, we estimate the value of
school facility investments using housing markets: standard models of
local public goods imply that school districts should spend up to the
point where marginal increases would have zero effect on local housing
prices. Our research design isolates exogenous variation in investments by
comparing school districts where referenda on bond issues targeted to fund
capital expenditures passed and failed by narrow margins. We extend this
traditional regression discontinuity approach to identify the dynamic
treatment effects of bond authorization on local housing prices, student
achievement, and district composition. Our results indicate that
California school districts underinvest in school facilities: passing a
referendum causes immediate, sizable increases in home prices, implying a
willingness to pay on the part of marginal homebuyers of $1.50 or more for
each $1 of capital spending. These effects do not appear to be driven by
changes in the income or racial composition of homeowners, and the impact
on test scores appears to explain only a small portion of the total
housing price effect. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..