Yifan Shen

The equity-efficiency tradeoff and cumulative return theories predict larger returns to school spending in areas with higher previous investment in children. Equity – not efficiency – is therefore used to justify progressive school funding: spending more in communities with fewer financial resources. Yet it remains unclear how returns to school spending vary across areas by previous investment. Using county-level panel data 2009-2018 from the Stanford Education Data Archive, the F-33 finance survey, and National Vital Statistics, we estimate achievement returns to school spending and test whether returns vary between counties with low and high levels of initial human capital (measured as birth weight), child poverty, and previous spending. Spending returns are higher among counties with low previous investment (counties that also have a high percent of Black students). Evidence of diminishing returns by previous investment documents another way that schools increase equality and establishes another argument for progressive school funding: efficiency.

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