Best Education Money Can Buy? Capitalization of School Quality in Finland

Abstract

By international comparison, Finnish pupil achievement is high and school achievement differences small. The Finnish education system is unusual also because there are no national testing programmes, and information on school quality measures is not publicly disclosed. Is school quality capitalized into house prices in this environment? Using a boundary discontinuity research design and data from Helsinki, we find that it is: 1 standard deviation increase in average test scores increases prices on average by 3%, which is comparable to findings from the UK and the USA. We argue that this surprisingly large effect is at least partly explained by the inelasticity of housing supply, as we use data from a densely populated urban area. We also show that the effect depends on local land supply conditions within the city and is highest in areas with inelastic supply. Furthermore, the price premium seems to be related to pupils’ socio-economic background rather than school effectiveness.