Does money matter? The effects of block grants on education attainment in rural China: Evidence from intercensal population survey 2015

Considerable disagreement exists on the impacts of intergovernmental transfers in improving education access and outcomes. This is further complicated by the fungibility of these transfers, especially in a developing country setting. This study examines the effects of the block grant established by the Chinese government to subsidize the operating costs of rural compulsory education in 2006 on education attainment in a difference-in-difference framework. Comparing students whose compulsory schooling was completed just before or after the reform in counties receiving higher and lower percentages of their operating costs from higher-level governments, we find that a 20% increase in subsidies received from higher levels of government has led to 0.21 more years of schooling completed (0.07 standard deviation) and a 2.2 percentage points rise in the probability of completing compulsory education (0.08 standard deviation). These findings have implications not just for China but also for other developing countries which aim to achieve universal compulsory education.