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Does Money Matter for Schools?

  • Helena Holmlund
  • Sandra McNally
  • Martina Viarengo

There is considerable disagreement in the academic literature about whether raising school expenditure improves educational outcomes. Yet changing the level of resources is one of the key policy levers open to governments. In the UK, school expenditure has increased by about 40 per cent in real terms since 2000. Thus, providing an answer to the question as to whether such spending has an impact on educational outcomes (and whether it is good use of public money) is of paramount importance. In this paper we address this issue for England using much better data than what has generally been used in such studies. We are also able to test our identification assumption by use of a falsification test. We find that the increase in school expenditure over recent years has had a consistently positive effect on outcomes at the end of primary school. Back-of-envelope calculations suggest that the investment may well be cost-effective. There is also some evidence of heterogeneity in the effect of expenditure, with higher effects for students who come from economically disadvantaged backgrounds.

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File URL: http://cee.lse.ac.uk/ceedps/ceedp105.pdf
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Paper provided by Centre for the Economics of Education, LSE in its series CEE Discussion Papers with number 0105.

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Date of creation: Jan 2009
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Handle: RePEc:cep:ceedps:0105
Contact details of provider: Web page: http://cee.lse.ac.uk/publications.htm

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  1. Sengupta, Jati K. & Sfeir, Raymond E., 1986. "Production frontier estimates of scale in public schools in California," Economics of Education Review, Elsevier, vol. 5(3), pages 297-307, June.
  2. Jonathan Guryan, 2001. "Does Money Matter? Regression-Discontinuity Estimates from Education Finance Reform in Massachusetts," NBER Working Papers 8269, National Bureau of Economic Research, Inc.
  3. Alan B. Krueger, 1997. "Experimental Estimates of Education Production Functions," NBER Working Papers 6051, National Bureau of Economic Research, Inc.
  4. Sandra McNally & Stephen Machin, 2004. "The Literacy Hour," Royal Economic Society Annual Conference 2004 43, Royal Economic Society.
  5. Alan B. Krueger, 2002. "Economic Considerations and Class Size," NBER Working Papers 8875, National Bureau of Economic Research, Inc.
  6. Joydeep Roy, 2004. "Impact of School Finance Reform on Resource Equalization and Academic Performance: Evidence from Michigan," Econometric Society 2004 North American Summer Meetings 425, Econometric Society.
  7. Link, Charles R. & Mulligan, James G., 1991. "Classmates' effects on black student achievement in public school classrooms," Economics of Education Review, Elsevier, vol. 10(4), pages 297-310, December.
  8. Gibbons, Steve & Machin, Stephen & Silva, Olmo, 2006. "Choice, Competition and Pupil Achievement," IZA Discussion Papers 2214, Institute for the Study of Labor (IZA).
  9. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
  10. Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule To Estimate The Effect Of Class Size On Scholastic Achievement," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 533-575, May.
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