Education inputs, student performance and school finance reform in Michigan

This paper estimates the impact of the Michigan school finance reform, Proposal A, on education inputs and test scores. Using a difference-in-difference estimation strategy, I find that school districts in Michigan used the increase in educational spending generated through Proposal A to increase teacher salaries and reduce class size to a smaller extent. Then, using the foundation allowance created by Proposal A as an instrument, I estimate the causal effect of increased spending on 4th and 7th grade math scores for two test measures – a scaled score and a percent satisfactory measure – and find positive effects of increased spending on 4th grade test scores. A 60% increase in spending increases the percent satisfactory score by one standard deviation. The positive impact of expenditures on test performance seems largely due to higher teacher salaries.