The impact of fiscal incentives on student disability rates

In this paper, I estimate the elasticity of student disability rates with respect to the generosity of state reimbursements. The classification response is identified from policy-induced variation in the amount of state aid generated by serving a disabled student across local school districts in Texas from 1991–1992 through 1996–1997. My central estimates imply that fiscal incentives can explain nearly 40% of the recent growth in student disability rates in Texas. The magnitude of the institutional response varies by district size and enrollment concentration, student race/ethnicity and the level of fiscal constraint.