Does Money Matter for Schools?

26 Pages Posted: 19 Oct 2008

See all articles by Helena Holmlund

Helena Holmlund

IFAU - Institute for Labour Market Policy Evaluation

Sandra McNally

University of Surrey; London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); IZA Institute of Labor Economics

Martina Viarengo

London School of Economics & Political Science (LSE); IZA Institute of Labor Economics; Harvard University - Harvard Kennedy School (HKS), Women and Public Policy Program

Abstract

There is considerable disagreement in the academic literature about whether raising school expenditure improves educational outcomes. Yet changing the level of resources is one of the key policy levers open to governments. In the UK, school expenditure has increased by about 40 per cent in real terms since 2000. Thus, providing an answer to the question as to whether such spending has an impact on educational outcomes (and whether it is good use of public money) is of paramount importance. In this paper we address this issue for England using much better data than what has generally been used in such studies. We are also able to test our identification assumption by use of a falsification test. We find that the increase in school expenditure over recent years has had a consistently positive effect on outcomes at the end of primary school. Back-of-envelope calculations suggest that the investment may well be cost-effective. There is also some evidence of heterogeneity in the effect of expenditure, with higher effects for students who come from economically disadvantaged backgrounds.

Keywords: education, resources

JEL Classification: I21, H52

Suggested Citation

Holmlund, Helena and McNally, Sandra and Viarengo, Martina, Does Money Matter for Schools?. IZA Discussion Paper No. 3769. Available at SSRN: https://ssrn.com/abstract=1286727 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Helena Holmlund (Contact Author)

IFAU - Institute for Labour Market Policy Evaluation ( email )

Box 513
751 20 Uppsala
Sweden

Sandra McNally

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Martina Viarengo

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Harvard University - Harvard Kennedy School (HKS), Women and Public Policy Program ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-496-4786 (Phone)

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