Greater Equity in School Funding Increases Intergenerational Mobility

Numerous studies over the past decade or more show that increases in school funding increase student achievement, school completion rates, post-school education and labour market outcomes particularly for disadvantaged students. Now, a new US study shows that more equitable funding of schools increases intergenerational income mobility. Equalisation in school spending closes the gap in investments on the education of low- and high-income students, and this promotes equalisation in their later life outcomes.

The study examined the causal effect of a reduction in the differences in public school revenues and expenditures across school districts within a state on intergenerational income mobility. It is the first study to consider the effect of school finance equalisation on social mobility. It was published in February by the US Bureau of Economic Research. It concludes:

These findings confirm the importance of equalization in school resources across richer and poorer districts for equality of children’s economic opportunities, and they are consistent with the literature on the positive effects of increased spending for low-income students’ outcomes. [p. 4]

The findings indicate that reducing disparities in funding between high- and low-income school districts is an important engine of mobility for low income students.

The study used variation in per student revenue generated by changes in school funding formulas passed in 20 US states between 1986 and 2004 to examine the causal effects of equalization on intergenerational mobility of children born between 1980 and 1986 who were exposed to these reforms while in school.

It found that a reduction in the difference in school revenues across richer and poorer school districts has a sizable positive effect on intergenerational income mobility. A one-standard deviation reduction leads to a 5.6 percentile increase in mobility for children with parental income in the 10th percentile, a 5.2 percentile increase for children from the 25th percentile, and a 3.5 percentile increase for children from the 90th percentile. These estimates correspond to a 16.2%, 14.9% and 9.5% increase in income, respectively.

The study also examined the channels through which school finance equalisation affects long-run economic outcomes. It found that equalising revenues and expenditures across districts reduces the gap in basic school inputs (such as the number of teachers) and in intermediate educational outcomes (such as the probability of attending college by age 19) between richer and poorer districts.

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