The Discussion Papers series presents results from ongoing research projects and other research and analysis by SSB staff, intended for international journals or books. The views and conclusions in this document are those of the author(s). 

We propose a novel identification strategy which exploits quasirandom variation in demographic trends when there is strong inertia in local government spending on compulsory schooling. Specifically, size of the exiting cohort that finishes compulsory schooling just before entry of the treated cohort is used as a source of exogenous variation. First, we show that exiting cohort size displays a significantly positive effect on per-pupil spending during school years of the treated cohort. Second, we argue that causal effects of school spending can be identified by utilizing exiting cohort size to instrument for school spending. In implementing this strategy, school spending is found to exhibit sizable and significant effects on income in adulthood for boys, with estimates that are relatively large for children from low- and middle-income families. By comparison, the effects of education spending are small and insignificant for girls.