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 Educ Earnings Time/ Age in yrs Benefits Opp Costs Upper Level Lower Level Direct Costs

Private Rates of Return

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 Egypt Philippines 1998 India Bolivia 1997 Kenya 1998 Brazil 1996 Mozambique 1997 Mali Grade Median grade attained by year olds: Inequalities in education outcomes

Egypt Philippines 1998 India Bolivia 1997 Kenya 1998 Brazil 1996 Mozambique 1997 Mali Grade Median grade attained by year olds: Inequalities in education outcomes Poorest 40 percent

Brazil Grade 9 India Grade Indonesia Grade Percent of year old cohort that has completed each grade Patterns of educational attainment across countries

Brazil Grade India Grade Indonesia Grade Percent of year old cohort that has completed each grade Poorest 40 percentRichest 20 percent Patterns of educational attainment across countries

Proportion of Public Subsidy Received by Poorest Quintile 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

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

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 Ratio of private to public cost and Achievement

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 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 Avg # of days missed: 1.34

EDUCOTradi tional EDUCOTradi tional 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