School Finance Reform and Juvenile Crime

Several states initiated school finance reform during the post-1990s, commonly named the “adequacy” era, with the primary purpose of providing adequate funding for low-income school districts. This paper uses the space-time variation in court-ordered reforms in this period as a shock to school spending and investigates its effects on juvenile arrest rates and risky behaviors. Using a 2SLS-DDD approach and a wide range of datasets, I find that exposure to reform reduces the juvenile arrest rates, increases the likelihood of high school graduation, increases the time spent on the educational activity, and reduces risky behaviors at schools. A 10% rise in real per-pupil spending is associated with 7.1 fewer arrests per 1,000 in a population aged 15-19. This rise is equivalent to a reduction of roughly 90,113 arrests annually. It also implies a minimum of 16% social externality in school spending.