Julie Berry Cullen
Abstract
Student disability rates have grown by over 50 percent over the past two decades and are continuing to rise. Policy discussion has linked this trend to state funding formulas that reward local school districts for identifying additional students with special needs. However, there is little empirical evidence on the role of these fiscal parameters in explaining student disability rates, or on the responsiveness of local program take-up rates to intergovernmental fiscal incentives more generally. In order to estimate the elasticity of student disability rates with respect to the generosity of state reimbursements, I use variation in the state aid generated by serving a disabled student across local school districts in Texas from 1991-92 to 1996-97. The take-up response is identified from sharp changes in the relative treatment of districts of differing wealth that arise from court-mandated changes in the structure of school finance equalization. My central estimates imply that fiscal incentives can explain 25 percent of the recent growth in disability rates in Texas. Also, there is evidence that students who are classified as disabled on the margin are disproportionately drawn from minority populations, and that students are more aggressively classified as disabled in districts that are potentially fiscally constrained.