EDUCATION AND THE PUBLIC BUDGET

Emmanuel Jimenez

Budgetary Processes & Public Expenditure Course

May 2000

Education and Policy: Principles

• Correcting for Market Failures

• Addressing Inequities

• Overcoming Implementation Problems

Correcting for Market Failures

• Private returns to education are high

• So, why should the government spend?

• Do these reasons hold for all types of education?

Private ROR to EducEarnings

Time/Age inyrs

Benefits

Opp Costs

Upper Level

LowerLevel

Direct Costs

Private Rates of Return

Primary Second Higher

Bol 89 9.8 8.1 16.4

Bra 89 36.6 5.1 28.2

Mex 84 21.6 15.1 21.7

Para 90 23.7 14.6 13.7

CotI 84 25.7 30.7 25.1

Leso80 15.5 26.7 36.5

Mlwi82 15.7 16.8 46.6

Japa 76 13.4 10.4 8.8

Tai 72 50.0 12.7 15.8

Market Failures in Education

• Externalities:– Productivity– Nation-Building

• Imperfect capital markets

• Imperfect information

Market Failures in Education

• Primary education: Strong externalities – productivity (effect of Green Revolution)

– nation building (literacy/numeracy)

• Higher education:– capital market failures

– no externalities except for research

• Technical education: none• Secondary: ???

Inequity in Education

• Inequity in outcomes

• Inequity in access to services and subsidies

Richest 20 percent

0 2 4 6 8 10

Egypt 1995-96

Philippines 1998

India 1992-93

Bolivia 1997

Kenya 1998

Brazil 1996

Mozambique1997

Mali1995-96

Grade

Median grade attained by 15-19 year olds:

Inequalities in education outcomesInequalities in education outcomes

0 2 4 6 8 10

Egypt 1995-96

Philippines 1998

India 1992-93

Bolivia 1997

Kenya 1998

Brazil 1996

Mozambique1997

Mali1995-96

Grade

Median grade attained by 15-19 year olds:

Inequalities in education outcomesInequalities in education outcomes

Poorest 40 percent

Brazil 1996

0

20

40

60

80

100

1 3 5 7

Grade

9

India 1992-93

0

20

40

60

80

100

1 3 5 7 9

Grade

Indonesia 1997

0

20

40

60

80

100

1 3 5 7 9

Grade

Percent of 15-19 year old cohort that has completed each grade

Patterns of educational attainment across countriesPatterns of educational attainment across countries

Brazil 1996

0

20

40

60

80

100

1 3 5 7 9

Grade

India 1992-93

0

20

40

60

80

100

1 3 5 7 9

Grade

Indonesia 1997

0

20

40

60

80

100

1 3 5 7 9

Grade

Percent of 15-19 year old cohort that has completed each grade

Poorest 40 percent Richest 20 percent

Patterns of educational attainment across countries

Proportion of Public Subsidy Received by Poorest Quintile

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Colomb Kenya Ghana Indones Malaysia

Primary

Secondary

Tertiary

Colom: 92; Kenya: 92/3; Ghana 91/2; Indon, Malay 89

Market Failures in Education• All levels of education have high private

returns.

• But social returns vary:– Primary education high:

• Strong externalities

• Strong equity effects

– Higher education probably low:• capital market failures

• Weak externalities except for research

• Costly for the public sector to produce

• Weak equity effects

• Technical education: weak; Secondary: ???

Tertiary is more costly than primary education

05

101520253035404550

Africa Brazil

Unit cost oftertiary overprimary

Directions for reform

• Re-think role of government: private-public; fiscal costs.

• Reorient public investment to primary education; be selective in higher levels (better targeting, user chgs)

Allocation of Education Budgets

Korea Venezuela

As % of GNPPub Exp on: All Educ Basic Educ

3.02.5

4.31.3

As % of BudgetPub Exp on: Higher Educ Basic Educ

10.383.9

43.431.0

Econ Growth1980-91 (%) 8.7 -1.3

Misallocation within subsectors: system-wide

• Poor quality, diagnosed as low levels of non-salary inputs: lack of texts, materials

• High unit costs– little incentive to minimize costs– teachers also lack incentive to perform well

Private Schools deliver better education at lower cost

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Colomb Dom Rep Phils Tanzania

CostAchieve.

Ratio of private to public cost and Achievement

Enrollment in Slums in Lahore• Data: 1,000 HHs in 26 slum areas

• % of children in HHs living on less than $1/day: 55%

0102030405060708090

Bot 14% Next41%

Top 5% All

No schoolPrivatePublic

Percent of Children Enrolled in Lahore by Income Group, School type

Alderman, Orzem and Paterno, “School Quality, Cost and Public/Private School Choice of Low Income HHs in PakistanWP 2, Impact Evaluation of Education Reforms, DECRG, World Bank 1996

Addressing Implementation and Governance

• Private-public partnerships

• Decentralization

• Demand-side financing

Decentralization of education

Pros• Devolves

responsibility to where there is most inform.

• More flexibility in meeting local needs

• Motivates users to be involved in delivery

Cons• May lead to inequity• may be too onerous

for those with low admin capcacity

• may lead to scale diseconomies

Decentralize to where?

• Center

• Region

• State/Province

• District/Municipality

• Neighborhood/facility (school or clinic)

Decentralize which function?• Set educational structure• Set curriculum• Formulate pedagogical plan• Hire/fire teachers• Hire/fire administrators• Promotions• Set class hrs by subject• Select textbooks• Evaluate students• Set fees, etc. etc.

Decentralization: General Lessons

• No firm evidence that decentralization to other tiers of government leads to efficiency gains that counteracts equity losses.

• Most of the evidence on gains is decentralization to facilities or local neighborhoods (school based management, etc.)

Two Cases of Education Decentralization

El Salvador• School governance to

community associations: hire/fire teach, adm gov funds

• Members elected from community

• Legally responsible for operations

Nicaragua• School governance to

school council• Members include

director, teachers, parents

• Addn’l resources retained at schools

Decentralization: Lessons from 2 cases

• Decentralization does not lead to worse student performance; but evidence on gains depends on other factors.

• Decentralization leads to greater participation by parents and associations in school governance; this leads to better teacher performance and student gains in achievement.

El Salvador Achievement Results

0.45

2.17

-0.77

0.74

-1

-0.5

0

0.5

1

1.5

2

2.5

Math Language

WithoutWith

Without: w/o school input and community participation variables; * Significant at 5%Values are in terms of Raw Scores (Averages are 4 and 2)

*

EDUCO Effect on School days missed due to teacher absence

-0.35

-1.45

-1.09

-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.0091-94 95 96Avg # of days

missed: 1.34

011.522.533.544.55

EDUCO Traditional

00.51

1.52

2.53

3.54

4.5

EDUCO Traditional

Hours/month teachers meet with parents

Number of ACE visits to the classroom

• Local participation

Countries where enrolment ratios have declined in the 1980s

• Benin

• Guinea-Bissau

• Ghana

• Mali

• Sierra Leone

• Nigeria

Definitions of Mechanisms• Stipend

• Community Financing

• Targeted Bursaries

• Vouchers

• Public Assistance to Private Schools

• Student Loans

• Community Grants