School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores


In this paper we study the effects of school finance reforms on the distribution of school spending across richer
and poorer districts, and the consequences of spending equalization for the distribution of SAT scores across
children from different family backgrounds. We use school district data from the 1977 and 1992 Censuses of
Governments to measure the correlation between state funding per pupil and median family income in each
district. We find that states where the school finance system was declared unconstitutional in the 1980s increased
the relative funding of low-income districts. Increases in state funds available to poorer districts led to
comparable or only slightly smaller increases in the relative spending of these districts, implying significant
equalization of expenditures per pupil across richer and poorer districts. Using micro samples of SAT scores
from this same period, we study the effect of changes in spending inequality within states on the gaps in test
scores for children from different family backgrounds. We develop a two-sample procedure to estimate the
fraction of students from each background group who write the test, and use these fractions to adjust for
selectivity biases in observed test score outcomes. We find some evidence that the equalization of spending
across districts leads to a narrowing of test score outcomes across family background groups.

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Working Papers