The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms *

TLDR

Since the Coleman Report, scholars have debated whether public school spending influences student outcomes, and the school finance reforms of the 1970s and 1980s dramatically altered K–12 spending structures in the United States. This study investigates how these reform‑induced changes in public school spending affect long‑run adult outcomes by linking spending and reform data to nationally representative birth cohort data from 1955 to 1985. The authors exploit the exogenous timing of court‑mandated reforms and associated funding‑formula shifts to compare adult outcomes of cohorts differentially exposed to spending changes by place and birth year. Event‑study and IV analyses show that a 10 % annual increase in per‑pupil spending over 12 years raises completed education by 0.31 years, raises wages by about 7 %, and reduces adult poverty incidence by 3.2 percentage points—effects that are larger for low‑income children—and also improves school inputs such as lower student‑to‑teacher ratios, higher teacher salaries, and longer school years.

Abstract

Abstract Since the Coleman Report, many have questioned whether public school spending affects student outcomes. The school finance reforms that began in the early 1970s and accelerated in the 1980s caused dramatic changes to the structure of K–12 education spending in the United States. To study the effect of these school finance reform–induced changes in public 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 exogenous shifters 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% increase in per pupil spending each year for all 12 years of public school leads to 0.31 more completed years of education, about 7% higher wages, and a 3.2 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 notable improvements in measured school inputs, including reductions in student-to-teacher ratios, increases in teacher salaries, and longer school years.