HETEROGENEITY, STRATIFICATION, AND GROWTH - MACROECONOMIC IMPLICATIONS OF COMMUNITY STRUCTURE AND SCHOOL-FINANCE

This paper examines how socioeconomic stratification and alternative s ystems of education finance affect inequality and growth. Agents inter act through local public goods or externalities (school funding, neigh borhood effects) and economy-wide linkages (complementary skills, know ledge spillovers). Sorting families into homogeneous communities often minimizes the costs of existing heterogeneity, but mixing reduces het erogeneity faster. Integration therefore tends to slow down growth in the short run yet raise it in the long run. A move to state funding of education presents society with a similar intertemporal trade-off. Lo cal and global complementarities play major roles in determining the e fficient social and educational structures.