New Study Shows that Increased Funding Improves Student Outcomes

The evidence that increased expenditure on schools improves student outcomes continues to accumulate. Yet another study has found that it increases test scores, reduces drop-out rates and increases tertiary education enrolments.

The new study analysed the relationship between school spending and student outcomes in the US state of Wisconsin. It found that an increase in per student expenditure of 5% resulted in a 25% reduction in the drop-out rate, an increase in test scores of approximately 30% of a standard deviation, and a 15% increase in postsecondary enrolment. The effect on test scores was estimated at about half that of reducing class sizes by eight students.

The study exploited a unique aspect of the Wisconsin school finance system to analyse the impact of increased expenditure. Since 1993-94, state-imposed revenue limits have capped the total amount of revenue that a school district in Wisconsin can raise for operating expenses. If a district wishes to exceed these caps, it must ask for voter approval in a local referendum. In practice, district residents who vote in favour of the initiative agree to a predetermined increase in their property taxes. Since 1993, roughly 1,200 referenda to override revenue limits have been held.

The study compared the revenue limits and total expenditures of school districts where a similar initiative at some point in time was narrowly successful to those where the initiative was narrowly defeated. It found that, relative to districts where an initiative was narrowly defeated, school districts that barely pass a referendum spend roughly $500 (5%) more per student each year in the years following the election.

Most of the additional resources were spent on reductions to student-staff ratios, increases in average teacher salaries, and increases in average teacher experience (potentially due to decreased teacher attrition). The remainder was spent on support services for students to improve attendance, health services such medical, dental and nursing, and career guidance services.

The study relied on a novel source of variation and employed a different identification strategy, but the results are consistent with those of many other recent studies of school expenditure and outcomes. Twenty-five other studies since 2015 have shown increased expenditure on schools improves student outcomes, especially for disadvantaged students.

Trevor Cobbold

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