Austerity Harmed Student Achievement

This paper shows that austerity-induced spending cuts harmed student performance in standardized national tests. To identify this relationship, we use cross-municipality variation in the timing of eligibility for the Italian Domestic Stability Pact as an exogenous shifter of local public spending. We then compare test scores for students that were from the same municipality but were exposed to different levels of austerity spending cuts, based on their birth year. Combining administrative data on public spending and test scores with an instrumental variable model, we show that the implied test score impact of austerity is between 2.1-2.4 (1.7- 1.9) percent of a standard deviation per 1,000 euros per-pupil reduction in current (capital) spending. The effects are more pronounced for children with limited resources at home. By contrast, effects are substantially dampened in municipalities with high-skill politicians and school principals, which are more likely to allocate the marginal spending cut toward less productive spending categories.