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«THE EFFECT OF SCHOOL FINANCE REFORMS ON THE DISTRIBUTION OF SPENDING, ACADEMIC ACHIEVEMENT, AND ADULT OUTCOMES C. Kirabo Jackson Rucker Johnson ...»

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One of the distinguishing features of the U.S. public education system is its heavy reliance on the local property tax base for school district funding. This paper highlights the important role played by the courts and legislators in school finance reform during the past four decades, and documents their long-term effects. We first investigated the effects of school finance reforms on district spending, both in terms of absolute levels in poor districts and in narrowing the spending gaps between the poor and affluent districts in a state. Consistent with prior research, we find that court-mandated reforms were effective at reducing spending inequality between high- and low-income districts within a state and that this was achieved by increasing spending for the lowest-income districts. However, we document new and important differences between various kinds of court-mandated reforms. Equity-based court-mandated reforms are effective at reducing spending differences between high- and low-income areas, but they appear to do so primarily through redistributing school spending. Adequacy-based school finance reforms are also effective at reducing spending gaps, but they do so by increasing school spending in all districts, with larger increases for low-income districts. Looking to legislative reforms, our findings differ from many others in that we find that legislative reforms were somewhat effective at reducing spending gaps. We document important differences in the effect of reforms based on how they affect funding formulas. Both foundation plans and equalization plans reduce spending inequality with respect to income, with ambiguous effects on the overall level of spending. Reward for effort plans (that lead to low tax prices in order to promote school spending) lead to increased spending growth for about five years after reforms and reduce spending gaps in the long run. Plans that impose spending limits reduce spending for all districts and lead to particularly large reductions in relative spending for high-income districts. Thus, the

                                                            

27   For example, if high-income parents were less likely to send their children to private school in districts that experienced increases in school spending (Downes & Schoeman, 1998), children in the public school system may have also experienced changes in peer quality. Districts that saw spending increases may have been able to attract better teachers through increases in salaries, improvements in non-pecuniary characteristics, or changes in the composition of students (Jackson, 2009; Jackson, forthcoming).

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first part of our paper makes important contributions to the public finance literature on the most effective designs of K-12 school funding formulas to narrow spending gaps between rich and poor districts while increasing overall average spending levels.28 The second part of our paper presents new evidence on the long-term productivity of education spending. The results make important contributions to the human capital literature and highlight how improved access to school resources can profoundly shape the life outcomes of economically disadvantaged children, and thereby significantly reduce the intergenerational transmission of poverty. We investigated the reform-induced effects of school spending increases on adult educational attainment, earnings, family income, and poverty status. We find that there are no discernable effects of increased school spending on children from non-poor families.

However, our results indicate that for children from poor families, increasing per-pupil spending by 20 percent for a child’s entire K-12 schooling career increases high school completion by 22.9 percentage points, increases the overall number of years of education by 0.928, increases adult earnings by about 24.6 percent, increases annual family income by 52.2 percent, and reduces the incidence of adult poverty by 19.7 percentage points. All of these effects are statistically significant and are robust to a rich set of controls for confounding policies and trends. The magnitudes of these effects are sufficiently large to eliminate between two-thirds and all of the gaps in these adult outcomes between those raised in poor families and those raised in non-poor families.

Our results indicate a causal relationship between per-pupil spending and student outcomes. However, the reform-induced spending changes we examine occurred at a time when average school spending levels were much lower (roughly $4,500) as compared with average per-pupil school spending in 2013 in excess of $10,000. Because education spending likely exhibits diminishing marginal productivity, at prevailing levels of school spending one might require much larger increases in spending to achieve the same effects as those found in this paper. That being said, after Coleman (1966), many have questioned whether increased school spending can really help improve the educational and lifetime outcomes of children from disadvantaged backgrounds. Our findings show that it can.

                                                            

28 Today, most of the variation in per-pupil spending is across states, rather than within state. Thus, the effect of school finance reforms can be limited, as far as equalization of spending across the U.S. is concerned.





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References

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Hoxby, C. M. "All School Finance Equalizations Are Not Created Equal." The Quarterly Journal of Economics (2001): 1189–1231.

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b.

a: all districts b: only districts observed for more than 10 years after reforms Data: The sample includes all school districts in the United States between the years of 1967 and 2010 (unless stated otherwise). The sample is made up of 483,047 district-year observations.

Model: These plots present the estimated coefficients of a regression on per-pupil spending at the district level on year fixed effects, district fixed effects, and the percentile group of the district in the state distribution of median income interacted with a full set of event-time indicator variables from 10 years prior to 19 years after reforms (for both court-mandated reforms and legislative reforms simultaneously). Standard errors are adjusted for clustering at the state level.    

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Data: The sample includes all school districts in the United States between the years of 1967 and 2010 (unless stated otherwise). The sample is made up of 483,047 district-year observations.



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