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This study examines whether teacher expectation moderates the effects of grade-3 test-based retention policy on student learning in tested and non-tested subjects as well as on instructional time allocation and student motivation. We analyzed the Early Childhood Longitudinal Study Kindergarten cohort (ECLS-K) data. In order to remove selection bias in estimating the policy effects, we applied a propensity score-based causal inference procedure that combines multilevel modeling with the marginal mean weighting through stratification (MMW-S) method.