The Effect of Reduced Support from State Government on Research in State Universities

Facing a 32% drop in state funding of higher education over the last decade, state universities are reluctant to raise tuition and, even if willing, many state governments have placed limits on how much tuition could be raised. If teaching and research are normal goods in the utility functions of university presidents, public universities must respond to this revenue loss by reducing their expenditures on teaching (e.g., having larger classes and less effective teachers who are paid lower salaries) and/or university research. As a result of these actions, faculty might get fewer grants and publish fewer articles. We find that state appropriations to public universities play a critical role in the production of university faculty research. A drop in state appropriations is accompanied by reductions in the number and value of NIH grants obtained by the university, probability that the university was in the top 120 getting money from the federal government, and number of publications by economists in the university.