Can a Teacher Salary Increase Promote Students' Educational Performance?

Abstract Policymakers in China have attempted to improve the quality of rural education by investing in teacher salaries through initiatives like the Rural Teachers Support Plan (RTSP). This study estimates the effects of teacher salary increase on students' educational outcomes in rural China by utilizing the exogenous variations of rural teacher salaries induced by the RTSP. It employs an intensity‐based difference‐in‐differences strategy and panel data from 2010 to 2018 with 3,351 rural children. The findings reveal that an increase in teacher salaries had a significant positive impact on students' examination results. Moreover, the results of mechanism analysis indicate that salary increases could have both quality and quantity effects on students' outcomes by increasing the proportion of highly educated teachers and reducing the student–teacher ratio. Our findings contribute to the discussion on the importance of teacher salary incentives in education production functions and provide insights for other countries undertaking rural education reforms.