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The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms (WP-15-19)

Kirabo Jackson, Rucker Johnson, and Claudia Persico

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, the researchers link school spending and school finance reform data to detailed, nationally representative data on children born between 1955 and 1985 and followed through 2011. They 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 they 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 12 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. 

Kirabo Jackson, Associate Professor of Human Development and Social Policy and Faculty Fellow, Institute for Policy Research, Northwestern University

Rucker Johnson, Associate Professor, Goldman School of Public Policy, University of California, Berkeley

Claudia Persico, Graduate Research Assistant, Institute for Policy Research, Northwestern University

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