The Impact of Cutting Education Expenditures

The Case of Mexico in the 1980s

by Francisco Perez-Arce

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This paper studies the impact of expenditures on the returns to schooling within a context of dramatic reductions in public spending. The author matches data on expenditures and pupil-teacher ratios from Mexico in the 1980s with individual earnings in 2007/2008 and find that the returns to education among individuals that went to poorly funded schools are lower than among those that went to better funded ones. He determines that within-state changes in educational expenditures and pupil-teacher ratios predict changes in the returns to education.

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