Getting Ahead by Spending More? Local Community Response to State Merit Aid Programs

50 Pages Posted: 29 Oct 2018

See all articles by Rajashri Chakrabarti

Rajashri Chakrabarti

Federal Reserve Bank of New York

Nicole Gorton

Federal Reserve Banks - Federal Reserve Bank of New York

Joydeep Roy

Economic Policy Institute; Georgetown University

Date Written: October 2018

Abstract

In more than half of U.S. states over the past two decades, the implementation of merit aid programs has dramatically reduced net tuition expenses for college-bound students who attend in-state colleges. Although the intention of these programs was to improve access to enrollment for high-achieving students, it is possible that they had unanticipated effects. We analyze whether state funding for higher education and K-12 education changed as a result of program implementation, and whether local school districts attempt to counter any such changes. We employ two methodologies to study whether this has been the case: a difference-in-differences model and a synthetic control estimation strategy. We find robust evidence that implementation of state merit aid programs led to an economically (and statistically) significant decline in state funding for K-12 education, which was mostly offset through increases in local revenues by school districts. These results have important implications for understanding how merit aid policies could have unintended consequences for the students they aim to support.

Keywords: merit aid, school finance, incentives

JEL Classification: H4, I2, J00

Suggested Citation

Chakrabarti, Rajashri and Gorton, Nicole and Roy, Joydeep, Getting Ahead by Spending More? Local Community Response to State Merit Aid Programs (October 2018). FRB of New York Staff Report No. 872. Available at SSRN: https://ssrn.com/abstract=3273572 or http://dx.doi.org/10.2139/ssrn.3273572

Rajashri Chakrabarti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://nyfedeconomists.org/chakrabarti

Nicole Gorton

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Joydeep Roy

Economic Policy Institute ( email )

1660 L Street NW, Suite 1200
Washington, DC 20036
United States
617 832 5626 (Phone)
703 465 0992 (Fax)

Georgetown University ( email )

Washington, DC 20057
United States

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