Schools and stimulus

Abstract

This article analyzes the impact of the education funding component of the American Recovery and Reinvestment Act of 2009 (Recovery Act) on public school districts. We use cross-sectional differences in district-level Recovery Act funding to investigate the program’s impact on staffing, expenditures, and debt accumulation. To achieve identification, we use exogenous variation across districts in the allocations of Recovery Act funds for students with special needs. We estimate that $1 million in grants to a district had the following average effects: Expenditures increased by $570,000, employment changed little to none, and debt increased by $370,000. Moreover, 70 percent of the increase in expenditures was in the form of capital outlays. Next, we build a dynamic, decision-theoretic model of a school district’s budgeting problem, which we calibrate to district-level expenditures and staffing data. The model can qualitatively match the employment and capital expenditure responses from our regressions. We also use the model to conduct policy experiments.