Do school budgets matter? The effect of budget referenda on student dropout rates

This paper analyzes how changes in school expenditures affect dropout rates based on data from 466 school districts in New York during the 2003/ 04 to the 2007/ 08 school years. Past traditional regression approaches show mixed results in part because school expenditures are likely endogenous, so that one cannot disentangle cause and effect. The regression discontinuity design used in this study isolates exogenous variation in school expenditures per pupil by comparing school districts where budget referenda passed and failed by narrow margins. The results indicate that increases in school expenditures reduce New York State dropout rates.