This paper tests whether state school finance reform alters neighborhood income
homogeneity. One implication of the Tiebout model is that within-community homogeneity
declines as a result of an exogenous decrease in the ability of jurisdictions to set local tax and
expenditure levels. The property tax revolt and the school finance equalization reform of the
1970s and 1980s offer a test of the role of state fiscal reform on aggregate population sorting
behavior. The results show that school finance has a significant effect on school district income
sorting, especially among low income communities.