Grade retention is widely used to address poor academic performance, yet its effectiveness remains debated. While most research focuses on its direct effects on retained students, the broader impact on the general student population has received less attention. This study investigates the indirect effects of grade retention on promoted students in Italy, utilizing variations in school-level retention strictness to estimate its influence. Using a rich administrative longitudinal dataset from Lombardy, Piedmont, and Veneto, we aim at estimating the causal impact of school strictness on student achievement. Results indicate that, overall, stricter retention policies do not enhance student performance, except in non-traditional lyceums, where positive effects are observed. A simulation study explores potential biases, showing that measurement error may lead to underestimation of strictness effects, while endogeneity concerns may cause overestimation. These findings suggest that grade retention is largely ineffective in improving student outcomes and may not be a suitable policy for addressing academic underperformance.