Does Money Matter for Schools? CEE DP 105
Author: Holmlund, Helena
Date: 2009-01-00
Type: Reports - Research
Subjects: Expenditures,Academic Achievement,English,Achievement Gains,Achievement Rating,Mathematics Achievement,Science Achievement,Educational Improvement,Investment,Outcomes of Education,Educational Assessment,Educational Indicators,Effect Size,Elementary Education,Funding Formulas,Educational Finance,Resource Allocation,Statistical Bias,Outcome Measures,Cost Effectiveness,Politics of Education,Census Figures,Predictor Variables,Foreign Countries

In the UK, education is the third largest area of government spending (of which school spending has the largest share). Since 2000, school expenditure has increased by about 40 per cent in real terms for both primary and secondary schools (see Figure 1). The question as to whether such investment is worthwhile is of central importance. The national debate is not revealing as to the answer. The government points to the improvement in the number of students achieving government targets in national tests whereas critics argue that this simply represents &quot;grade-inflation&quot; and &quot;teaching to the test&quot;. In this paper, the authors address this issue for English primary schools. They use census data available on all pupils completing state primary schools between 2001/02 and 2006/07. This includes measures of academic achievement on national (externally marked) tests of English, Mathematics and Science at age 11 (the authors' outcome measures); similar measures of prior attainment (on the basis of tests at age 7); and indicators of gender, ethnicity and socio-economic deprivation. The data set can be linked to the school-level census for relevant years, which includes school expenditure. Thus, a unique feature of the authors' data set is that it contains detailed information on school-level expenditure, for all English state primary schools, over a time period of eight years. In the literature about the effects of school resources, one of the main difficulties has been that there is a strong redistributive component in how resources are allocated to schools (at least in the UK and the US). If this is not taken into account, there is a high risk of downward bias in the estimate of the effect of school resources on academic achievement. This is one argument for why so many studies find no apparent effect of resources on achievement. The authors show that by controlling for the range of pupil and school-level characteristics available to them (and taking out the school fixed effect), the sign of the estimated effect of school resources on pupil achievement changes from negative to positive (and is statistically significant). Moreover, this effect is of a similar magnitude for all three subjects (English, Mathematics and Science) and corresponds to about 5 per cent of a standard deviation. The authors are able to identify effects after including so many controls because of the complicated system of funding schools. The system has many idiosyncrasies at the local level, and the sharp increase in school spending since 2000 has also been accompanied by numerous changes at the national level. The changes over time implied by government regulations are thus exogenous to decisions made at school level. Although the authors are not able to prove their identifying assumption (that the error term is randomly distributed), they apply a simple falsification test, where they show results which support their argument that the positive effect of expenditure on achievement represents a causal impact. Specifically, they find that a positive effect of expenditure on achievement only occurs if the spending has taken place during the pupil's time in primary school; it has no effect if it takes place the year after the pupil has left their primary school (and entered secondary school). This finding is convincing and suggests that the estimated positive effects of school expenditure are not driven by an unobservable factor. If one accepts the assumption of the authors' analysis, then it is legitimate to interact average expenditure with pupil-level characteristics and consider whether there might be heterogeneity in the effects of expenditure. The authors find that expenditure has had a higher impact for pupils who are more economically disadvantaged, but there seems to be little heterogeneity in expenditure effects based on pupils' ability or whether they speak English as a second language. Additional tables are appended. (Contains 2 figures, 5 tables and 17 footnotes.)