There is a long-standing debate in the literature on whether and how various school inputs including school financing affect students’ educational outcomes.  Empirical studies trying to answer these questions include cross-countries comparisons as well as within-country studies exploiting variation across regions or across time. The purpose of our study is to estimate how economic and social differences among regions of a country are related to the differences in financial resources available to schools and how they jointly affect educational outcomes. To answer this question we study the case of Russian general education system. We exploit variation in school financing due to significant disparities among 83 Russian regions and to the recent reforms in Russia's educational system.

In a recent survey Hanushek and Woessmann (2010) state that international evidence on the effect of school expenditures on student outcomes is weak. More robust cross-national evidence pertains to the positive effects of teacher quality and to the institutional features of school system that affect incentives. Within-country studies also show mixed picture. For example, Woesmann (2007) finds no significant effect of school spending on student performance in Germany while Jackson at al. (2015) utilize quasi-experimental setting in US to  show robust positive effects of increased school spending. They find that positive effect was much more pronounced for children from low income families. 

During the last ten years a number of significant reforms have been implemented in the system of general education in Russia. There were changes in schools financing, governance and curricula. These reforms included such widely discussed measures as implementation of per-student budget financing of schools (instead of the cost-based financing) and incentive-based teacher remuneration along with the attempts to raise average teacher salary to the level of average regional wages.

Major part of financing comes to schools from the regional and municipal budgets. Due to its vast territory Russia is characterized by significant variation in economic and social conditions at the regional level. Eighty-three Russian regions vary a lot both in school resources and in educational outcomes. The amount of budget financing of the general education system has grown during 2006-2013: average regional budget financing per student (adjusted for the differences in the cost of living between regions and across years) has increased by 40%. Large part of this growth has happened in 2012-2013. At the same time regions vary significantly in the amount of financing and this variation has not decreased during this period. 

There have been a number of studies estimating the effects of different factors on schooling outcomes in Russia. For instance, Amini and Commander (2012) used PISA and TIMSS data for this purpose. They found that test results are significantly affected by the family characteristics as well as by institutional factors such as student-teacher ratios and indicators of school autonomy. However none of these studies looked at the effect of school financing or other regional characteristics on educational outcomes. We are trying to fill this gap using all available data.

Amini, Chiara & Commander, Simon, 2012."Educational Scores: How does Russia Fare?," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 508-527. Hanushek, Eric A. and Ludger Woessmann, 2011, The Economics of International Differences in Educational Achievement, in: E.A. Hanushek, S. Machin, L. Woessmann (eds.), Handbook of the Economics of Education, Vol. 3, pp. 89-200, Amsterdam: North Holland, 2011 Jackson, C. Kirabo, Rucker C. Johnson and Claudia Persico, 2015, The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms, NBER Working Paper No. 20847 Ludger Woessmann, 2007, Fundamental Determinants of School Efficiency and Equity: German States as a Microcosm for OECD Countries, IZA DP No.2880