C. Kirabo Jackson, Cora Wigger and Heyu Xiong:

Audits of public school budgets routinely find evidence of waste. Also, recent evidence finds that when school budgets are strained, public schools can employ cost-saving measures with no ill-effect on students. We theorize that if budget cuts induce schools to eliminate wasteful spending, the effects of spending cuts may be small (and even zero). To explore this empirically, we examine how student performance responded to school spending cuts induced by the Great Recession. We link nationally representative test score and survey data to school spending data and isolate variation in recessionary spending cuts that were unrelated to changes in economic conditions. Consistent with the theory, districts that faced large revenue cuts disproportionately reduced spending on non-core operations. However, they still reduced core operational spending to some extent. A 10 percent school spending cut reduced test scores by about 7.8 percent of a standard deviation. Moreover, a 10 percent spending reduction during all four high-school years was associated with 2.6 percentage points lower graduation rates. While our estimates are smaller than some in the literature, spending cuts do matter.

Related: COMMENTARY ON K-12 TAX, SPENDING AND OUTCOMES: KANSAS CITY AND MADISON: