Does Money in Schools Matter? Evaluating the Effects ... - EPGE/FGV

that the relative wages of public school teachers increased between 1997 and 1999,
particularly in the municipal system in the Northeast of Brazil, which they attribute to
FUNDEF. However, there is no study evaluating the impact of FUNDEF using school level
data and examining its effects on the relative proficiency of public school pupils. We think
that this paper also relates to a broader literature the tries to evaluate the impact of
resources spent on education and on teacher labor market (see Hanushek, 2003, for
example).
The structure of the paper is as follows. In section 2 we describe the FUNDEF
program and section 3 describes the data. Section 4 presents the econometric methodology,
while the results are presented in section 5 and the conclusions in section 6.
2) The FUNDEF Program
In each Brazilian municipality, the public schools may belong to the State system or to the
municipality system. The new Brazilian constitution, which took effect in 1988, stated that
all States, Municipalities and the Federal Government had to spend a fixed share of their
tax and transfer revenues in their public education system. This share was equal to 25% in
the cases of states and municipalities and 18% in the case of the federal government. With
this new legislation, the amount of resources allocated to education increased, but the so did
heterogeneity of the public schools, since richer states with a small share of students in their
system were spending much more per pupil than were poor municipalities with a large
share of students. Moreover, there was no mechanism to enforce that the education