The Effect of Education Public Spending on Earnings: Evidence from a Targeted Voucher Program

We quantify the effect of education public spending on earnings. We exploit heterogeneity across schools in the total change in resources induced by Chile’s 2008 Preferential School Subsidy (SEP) reform, a targeted voucher program. Our empirical strategy leverages pre-reform shares of disadvantaged students to construct instrumental variables that isolate exogenous variation in funding. We find that a US$100 increase in annual reform-induced school resources per student raises initial earnings by 4.8 %–8.8 % across student cohorts. The primary channel behind this effect is the allocation of funds to hiring full-time staff.