Working Paper: NBER ID: w20847
Authors: C. Kirabo Jackson; Rucker C. Johnson; Claudia Persico
Abstract: Since Coleman (1966), many have questioned whether school spending affects student outcomes. The school finance reforms that began in the early 1970s and accelerated in the 1980s caused some of the most dramatic changes in the structure of K–12 education spending in US history. To study the effect of these school-finance-reform-induced changes in school spending on long-run adult outcomes, we link school spending and school finance reform data to detailed, nationally-representative data on children born between 1955 and 1985 and followed through 2011. We use the timing of the passage of court-mandated reforms, and their associated type of funding formula change, as an exogenous shifter of school spending and we compare the adult outcomes of cohorts that were differentially exposed to school finance reforms, depending on place and year of birth. Event-study and instrumental variable models reveal that a 10 percent increase in per-pupil spending each year for all twelve years of public school leads to 0.27 more completed years of education, 7.25 percent higher wages, and a 3.67 percentage-point reduction in the annual incidence of adult poverty; effects are much more pronounced for children from low-income families. Exogenous spending increases were associated with sizable improvements in measured school quality, including reductions in student-to-teacher ratios, increases in teacher salaries, and longer school years.
Keywords: school spending; educational outcomes; economic outcomes; school finance reforms
JEL Codes: H0; I20; I24; J00; J1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10% increase in per-pupil spending (H52) | 0.27 more completed years of education (I24) |
| 10% increase in per-pupil spending (H52) | 7.25% increase in wages (J31) |
| 10% increase in per-pupil spending (H52) | 3.67 percentage-point reduction in adult poverty (I32) |
| 10% increase in per-pupil spending for low-income children (I24) | 0.43 additional years of completed education (I24) |
| 10% increase in per-pupil spending for low-income children (I24) | 9.5% increase in earnings (J31) |
| 10% increase in per-pupil spending for low-income children (I24) | 6.8 percentage-point reduction in annual poverty incidence (I32) |
| court-mandated reforms (K40) | changes in school spending (H52) |
| changes in school spending (H52) | improvements in school quality (I21) |
| improvements in school quality (I21) | educational and economic outcomes (I24) |