This article estimates expenditure equations for Michigan school districts using Kelejian's (1971) procedure for dealing with the endogenous state aid variables. Alternative specifications of the expenditure equation are derived, based on (i) a median voter model and (ii) Niskanen's (1971) budget-maximizing model. Theoretical considerations imply different specifications of the aid variables than have been used in previous empirical work. The estimated effect of grants-in-aid is a larger increase in expenditures than is consistent with model (i) but less than is consistent with model (ii).
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