Does Money Matter in the Long Run? Effects of School Spending on Education Attainment

November 2016
Joshua Hyman

This paper measures the effect of increased primary school spending on students' college enrollment and completion. Using student-level panel administrative data, I exploit variation in the school funding formula imposed by Michigan's 1994 school finance reform, Proposal A. Students exposed to $1,000 (10 percent) more spending were 3 percentage points (7 percent) more likely to enroll in college and 2.3 percentage points (11 percent) more likely to earn a postsecondary degree. The effects were concentrated among districts that were urban and suburban, lower-poverty, and higher-achieving at baseline. Districts targeted the marginal dollar toward schools serving less-poor populations within the district.

I thank Susan Dynarski, John Bound, Brian Jacob, and Jeffrey Smith for their advice and support. I am grateful for helpful conversations with Eric Brunner, Paul Courant, Eleanor Dillon, Thomas Downes, Robert Garlick, Michael Gideon, Max Kapustin, Glenn Nelson, Stephen Ross, Caroline Theoharides, and various conference and seminar participants. Thanks to Kathryn Summers at the Michigan Senate Fiscal Agency for data and helpful discussion. I am grateful to John Friedman and three anonymous referees for helpful comments that significantly improved the paper. Thanks to the Institute of Education Sciences, U.S. Department of Education for providing support through Grant R305E100008 to the University of Michigan. Thanks to my partners at the Michigan Department of Education (MDE) and Michigan’s Center for Educational Performance and Information (CEPI). This research used data structured and maintained by the Michigan Consortium for Education Research (MCER). MCER data are modified for analysis purposes using rules governed by MCER and are not identical to those data collected and maintained by MDE and CEPI. Results, information, opinions, and any errors are my own and are not endorsed by or reflect the views or positions of MDE or CEPI. Mailing address: Department of Public Policy, 1800 Asylum Ave., 4th Floor, West Hartford, CT 06117; Email:[email protected].