1. (4 points) Local Government and Property Taxes

Property taxes make up the largest source of local government revenue. One of the major determinants of residential property value are the services provided by local governments. The primary source of funding for public education (K-12) is through property taxes which implies that schools in neighborhoods with higher property value will receive more funding, while schools in neighborhoods with lower property value will receive less funding.

1. (4 points) Discuss the advantages and disadvantages of public education being funded through property taxes and property value.

2. (2 points) Extra Credit: To improve the equity in school finances, suppose Indiana implemented a school finance reform that transferred funding from Eagleton, a town with relatively high property value (wealthier schools), to Pawnee, a town with lower property value and low funding for schools. Predict whether you think the property value will increase, decrease, or is uncertain in both i) Pawnee and ii) Eagleton. Explain your reasoning.