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CESifo Working Paper No. 2383

Does a Generous Welfare State Crowd out Student
Achievement? Panel Data Evidence from
International Student Tests

Abstract

Student achievement has been identified as important contributor to economic growth. This
paper investigates the relationship between redistributive government activities and
investment in human capital measured by student performance in international comparative
tests in Mathematics and Science during the period 1980 to 2003. In fixed effects panel
models, government consumption, government social expenditures, and the progressivity of
the income tax system have negative effects on student achievement. We report results from a
variety of model specifications and social expenditure components, and our best estimate
indicates that increased government size by 10 percent reduces student achievement by 0.1
standard deviations.

JEL Code: H2, I2, C33.

Keywords: student achievement, welfare state, government size, tax system, panel data,
international tests.

Version: 14 July 2008

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