Given states’ balanced budget requirements, investment decisions often involve trade-offs between policymakers’ budget priorities. How does political party control affect investment decisions and outcomes? Using a regression discontinuity design based on close state elections between 1984-2013, we find that marginally Democratic legislatures spend more on higher education in states with higher unemployment and poverty rates. However, Democrats spend less on K-12 education, particularly in more liberal states. Democrats do not appear to decrease K-12 spending to increase higher education, but rather, to fund welfare. Gains in local revenue offset party differences in K-12 spending such that current expenditures in K-12 increase and student-teacher ratios decrease under Democrats, though not enough to change attendance rates. Increased welfare spending under Democrats appear consistent with their redistributive goals that also benefit their constituents, as health insurance coverage for non-White children also expand. Altogether our results indicate that policymakers make spending decisions while considering constituents’ needs and the availability of external budget sources.
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