In 2021, the gross enrollment rate in upper secondary schools in low-income countries was only 33%, whereas high-income countries had already achieved near-universal upper secondary school enrollment rates (close to 100%) as early as 1999. Although the gap in upper secondary school enrollment rates between China, middle-income countries, and high-income countries has gradually narrowed since the 20th century, significant disparities persist. There is a broad consensus that a upper secondary school diploma serves as the minimum threshold for successful entry into the labor market(OECD, 2023). As a crucial bridge between basic education and higher education, upper secondary school education plays a pivotal role in the accumulation of individual human capital. Therefore, improving upper secondary school enrollment rates in impoverished areas not only enhances individual employment prospects but also promotes educational equity and social mobility, carrying substantial practical significance and policy value. To increase upper secondary school enrollment rates in impoverished areas, it is essential to prioritize human capital investment in children before they reach upper secondary school age. This study aims to evaluate whether China's compulsory education fee exemption policy, which reduces the cost of education, has increased educational consumption in rural areas—specifically, whether it has led to an increase in upper secondary school enrollment rates.

Education is considered as a normal good, when its price decreases, people tend to consume more educational services(Carneiro & Heckman, 2002), reflecting the substitution effect of the product. Therefore, when compulsory education becomes free, parents who previously could not afford to send their children to upper secondary school due to high educational costs may choose to continue their children's education through upper secondary school.

In addition to the substitution effect, the free compulsory education policy also influences family education decisions through the income effect. The policy significantly reduces household education expenditures, effectively increasing disposable income. This income effect can promote the accumulation of human capital in rural families through two channels:

First, the flypaper effect. Shi (2012) has confirmed the existence of the flypaper effect among rural families in China. That is, parents tend to earmark the funds saved from tuition waivers specifically for their children's educational investment, such as buying school supplies and enrolling their children in extracurricular tutoring, rather than spending it on other non - educational expenses. Wang (2018) further indicated that the savings from the "Two Exemptions and One Subsidy" policy enable rural poor families to improve their children's nutritional status. Adequate nutritional intake not only helps enhance learning efficiency(Glewwe et al., 2001), but may also lead to better academic performance, thereby increasing the likelihood of advancing to upper secondary school.

Second, alleviating credit constraints. Due to the imperfections in the education capital market, low-income families struggle to obtain sufficient educational financing even when they recognize the high expected returns of education(Carneiro & Heckman, 2002; L. J. Lochner & Monge-Naranjo, 2011; L. Lochner & Monge-Naranjo, 2012). Research shows that family income significantly impacts children's educational attainment(Elstad & Bakken, 2015; Shea, 2000). Government investment in education, particularly financial support for early education, can effectively alleviate the educational investment constraints of low-income families, thereby improving their children's educational levels(L. Lochner & Monge-Naranjo, 2012).

Due to the variation in the implementation timing of free rural compulsory education across different provinces, we are able to use the DID method to identify the impact of this policy on upper secondary school enrollment rates. The baseline model is specified as follows:: Y ipc = φTreatipc + βX ipc + δP + γc + +εipc （1） Y ipc refers to whether individual i in cohort[ The cohort in this paper is adjusted from the birth cohort according to the school year, which will be introduced in detail later..] c who lived in province p at the age of 12 attended upper secondary school. The main explanatory variable, Treatipc, represents the policy exposure variable, indicating the extent to which individual i in cohort c of province p is affected by the free compulsory education policy. It is calculated based on the number of semesters that an individual is affected by the free compulsory education policy. X ipc represents a vector consisting of control variables. These mainly include an individual's gender and ethnicity, whether they have siblings, as well as their parents' educational attainment and the Index of Social Economic Status (ISEI) when the individual was 14 years old. In China, the vast majority of children make decisions regarding whether to enter upper secondary school between the ages of 13 and 14. A large number of studies have shown that family background can influence a child's educational attainment. Therefore, this paper controls for some family background information of the individuals to improve the estimation accuracy and reduce errors. Given that only information from one parent is available in some single - parent families, to ensure the rationality and consistency of data processing, for non - single - parent families, when considering the educational attainment of parents and the Index of Social Economic Status (ISEI), we select the maximum value from the corresponding data of both parents. δP represents the provincial fixed - effect, which captures the characteristics at the provincial level that do not change over time. γc represents the cohort fixed - effect. εipc is the clustered standard error clustered at the county level.

The free compulsory education policy has greatly reduced the economic burden on rural families. This paper mainly discusses the impact of free compulsory education on the upper secondary school enrollment rate of rural children. By using the DID identification strategy and nationally representative data from the CFPS survey, we found that the free compulsory education policy has achieved remarkable results in encouraging rural children to continue their studies at the upper secondary school stage, and the effect is particularly prominent for rural girls. This not only helps to narrow the gender gap in upper secondary school enrollment rates, but also narrows the urban-rural gap, promotes educational equity, and thereby promotes social equity. The positive impact of the free compulsory education policy on rural children provides strong support for subsequently providing further financial subsidies to children in rural families at the compulsory education stage and even the preschool education stage. Although the upper secondary school enrollment rate in rural areas of China has increased significantly, there is still a large gap compared with that in urban areas. In the later stage, it is still necessary to further increase the financial subsidies for children from rural and urban disadvantaged families at the preschool and compulsory education stages to help more children obtain more and better education.

Shi, X. (2012). Does an intra-household flypaper effect exist? Evidence from the educational fee reduction reform in rural China. Journal of Development Economics, 99(2), 459–473. Carneiro, P., & Heckman, J. J. (2002). The Evidence on Credit Constraints in Post-Secondary Schooling. The Economic Journal, 112(482), 705–734. https://doi.org/10.1111/1468-0297.00075 Wang, L., Li, M., Abbey, C., & Rozelle, S. (2018). Human Capital and the Middle Income Trap: How Many of China’s Youth are Going to High School? The Developing Economies, 56(2), 82–103. Glewwe, P., Jacoby, H. G., & King, E. M. (2001). Early childhood nutrition and academic achievement: A longitudinal analysis. Journal of Public Economics, 81(3), 345–368. Lochner, L., & Monge-Naranjo, A. (2012). Credit Constraints in Education. Annual Review of Economics, 4(1), 225–256. https://doi.org/10.1146/annurev-economics-080511-110920 OECD. (2023). Education at a Glance 2023. Chen, X., Shi, Y., Mo, D., Chu, J., Loyalka, P., & Rozelle, S. (2013). Impact of a Senior High School Tuition Relief Program on Poor Junior High School Students in Rural China. CHINA & WORLD ECONOMY, 21(3), 80–97. Wang, Y. (2018). Educational and nutritional consequences of education subsidy in rural China. China Economic Review, 51, 167–180. https://doi.org/10.1016/j.chieco.2018.03.004