Using the Psid to Study the Effects of School Spending

Abstract

Many studies have examined the effects of school spending on educational attainment, and the results have been mixed. Unfortunately, most of these studies have had limited information about the family and neighborhood characteristics that may affect a student's educational attainment. This articles uses a unique data set that adds school-level data from the Common Core of Data to the rich source of family and neighborhood information of the Panel Study of Income Dynamics. It is found that school spending is positively related to the likelihood a student will graduate from high school and attend college and to the student's years of schooling. In addition, the results for high school graduation are sensitive to the inclusion of variables often not available in previous studies, suggesting that omitted-variables bias may result in studies concluding that money does not matter when, indeed, school spending is important.