Friday, November 7, 2014
Cimarron (Convention Center)
*Names in bold indicate Presenter
Given the large sums of money spent on public primary and secondary schooling in the United States, it is important to understand whether increased school spending improves the later life outcomes of students. This paper examines the effect of increases in education expenditures on long-run measures of educational attainment. Using student-level panel data, I exploit nonlinearities in the funding formula imposed by Michigan's 1994 school finance reform, Proposal A, to estimate the causal effects of spending on postsecondary enrollment and degree receipt. Students who were exposed to $1,000, or 12%, more spending per year during grades four through seven experienced a 3.9 percentage point increase in the probability of enrolling in college, and a 2.5 percentage point increase in the probability of earning a degree. The increases in spending lowered class sizes and raised teacher salaries only slightly, but substantially reduced the ratio of pupils to administrators. School districts targeted the additional dollar toward schools serving less poor populations within the district, and consistent with this finding, the postsecondary effects appear concentrated among non-poor students. This is the first study to exploit plausibly exogenous variation in spending to examine effects on students' long-run outcomes.