School Finance Reforms, Tax Limits, and Student Performance: Do Reforms Level Up or Dumb Down?

During the late 1970s and early 1980s, a majority of states substantially changed the ways in which schools were funded, either directly through court- or legislatively mandated school finance reform, or indirectly through tax and expenditure limits. To date, there have been few academic attempts to gauge the effects of these policy changes on actual outcomes of education. This paper is an attempt to fill this gap in the literature. We find compelling evidence that the imposition of tax or expenditure limits on local governments in a state results in a significant reduction in the mean for that state of student performance on standardized tests of mathematics skills. We also find that finance reforms in response to court mandates do not result in significant changes in either the mean level or the distribution of student performance on standardized tests of reading and mathematics. In addition, substantial finance reforms that are not legislative responses to explicit court mandates generally result in increases in mean student performance. Further, in those states that have implemented finance reforms of this type, the test performance of students residing in localities in which local revenues formed smaller shares of total revenue prior to the reforms improve relative to others after the reforms are implemented.