The Long-Run Impact of School Funding on Economic Outcomes

Do public investments in compulsory schooling translate into the same long-run economic gains for all? Using a large intergovernmental transfer reform in Norway that mechanically shifted municipal school revenues based on pre-reform student age structure, I estimate the long-run impacts of school funding on human capital, earnings, and family outcomes. First, municipalities primarily allocate additional funds hiring more teachers. Secondly, average earnings effects for students are positive but moderate: nine years of exposure to an additional $100 per pupil per year increases annual earnings by about $200 in the mid-30s, implying an internal rate of return of about 6% and a marginal value of public funds between roughly 1.2 and 2.1. However, these mean effects mask sharp heterogeneity by gender and parental background. The labor-market return is concentrated among men, whose earnings rise by over $350 per year, while women show little response in own earnings. Economic gains for women are instead realized primarily through the marriage market, experiencing significant increases in partner earnings and couple per-capita income, alongside higher partnership formation. A simple model with skill-increasing labor-market discrimination and gendered norms about partner-provided consumption rationalizes why similar human-capital gains can map into gender-divergent earnings channels. Finally, returns are largest for boys from low-educated families, consistent with partial parental crowd-out of public investments among highly educated households.