School finance reform, the distribution of school spending, and the distribution of student test scores

This paper studies the effect of school finance reforms on the distribution of school spending across richer and poorer districts, and the consequences of spending equalization for the relative test performance of students from different family backgrounds. 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 the amount of state aid available to poorer districts led to increases in the spending of these districts, narrowing the spending gap between richer and poorer districts. Using micro samples of SAT scores from this same period, we then test whether changes in spending inequality affect the gap in achievement between different family background groups. We find evidence that equalization of spending leads to a narrowing of test score outcomes across family background groups. (C) 2002 Elsevier Science B.V. All rights reserved.