Exit or Invest: Segregation Increases Investment in Public Schools

Recent literature suggests that integrated communities invest more in public goods by overcoming political polarization that plagues segregated cities. However, investment in public education is not likely to follow the same pattern as other public goods because of the historical legacy with segregation and public education. To test this, I have collected data on the 11,000 plus school districts in the United States from 1995 to 2011. Using multilevel models with a state-school district nested design, I find that White-Black segregation leads to more investment in public education while White-Hispanic segregation, as well as segregation by income, has no effect. To help establish causality, I use the overturning of court desegregation orders as an exogenous shock to school segregation as a natural experiment. This result is robust across a broad array of alternative specifications. The results imply that segregation is still shaping public education.