This paper investigates how emigration of rural laborers affects public education spending on rural schools in the sending regions in China. To organize the empirical analyses, we construct a theoretical model of local government spending decision-making. The model captures two types of externalities of local public education spending. One is the traditional externality due to the emigration of locally educated laborers; the other is the fiscal externality because emigrants leave their children behind to receive basic education in the hometown. The model predicts that with moderate restrictions on parameter values, per student spending on public schools in the sending regions decreases with emigration rate, and the negative relationship is stronger when more children are left behind. We test these hypotheses combining data generated from the Population Censuses and City Statistics Yearbooks. We confirm these hypotheses using both an OLS estimator and an IV estimator with a Bartik-style instrumental variable. The estimation results are robust to various measures of emigration rate and education spending and to controlling for contemporaneous policy changes.
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