Main driving forces of education expenditures Torberg Falch Department of Economics Norwegian...
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Main driving forces of education expenditures
Torberg FalchDepartment of Economics
Norwegian University of Science and TechnologyTrondheim, Norway
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Overview of the presentation
• Identifying determinants of
- Expenditures in compulsory education
- Enrolment in tertiary education
- Public expenditures in tertiary education
• Potential school reforms in the future with implications for public sector expenditures
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Expenditures in compulsory education: Theory
• Public sector decision-making
- Median voter model
- Bargaining within multi-party legislatures and with interest groups (trade unions)
- Common pool problem
- Fiscal illusion and the flypaper effect
- Behaviour of schools and their cost function
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Expenditures in compulsory education: Empirical evidence
• Increased number of students increases expenditures (USA; Hoxby, 1996, Poterba, 1997, Harris et al., 2001; UK: Jackman and Papadachi, 1981, Johnes, 1993, Taylor and Bradley, 2000; Denmark: Heinesen, 2004; Norway: Borge and Rattsø, 1995, Falch and Rattsø, 1996, 1997, 1999a)
• The effect of the number of students is inelastic; the elasticity seems to be in the range 0.6 – 1.0.
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• Increased income increases expenditures; education is a normal good (USA; Feldstein, 1975, Inman, 1979, Craig and Inman, 1982, Romer et al. 1992, Hoxby, 1996, Miller, 1996, Unnever et al., 2000, Harris et al., 2001; UK: Jackman and Papadachi, 1981; Denmark: Heinesen, 2004; Norway: Borge and Rattsø, 1995, Falch and Rattsø 1996, 1997, 1999a; Cross-country: Schultz, 1987, 1988)
• In cross-section studies the income elasticity is in the range 0.3 – 0.7
• In time series studies and cross-country studies the income elasticity is in the range 1- 2
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• Other relevant factors (USA: Romer et al., 1992, Hoxby, 1996, Poterba, 1997, Flyer and Rosen, 1997, Miller, 1996, Harris et al., 2001; UK: Taylor and Bradley, 2000; Denmark: Heinesen, 2001; Norway: Borge and Rattsø, 1995, Falch and Rattsø, 1996, 1997, 1999a, Bonesrønning et al., 2004)
- Share of disadvantaged students (+)
- Tax price (-)
- Share of elderly in the population (-)
- Teacher unions (+)
- Political structure, political strength (+)
- Female labour force participation (+)
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Decomposition model of school expenditures
(Schultz, 1987, 1988, Falch and Rattsø, 1996, 1997, 1999a)
• In Europe the teacher wage is often determined centrally
• The decision-making on teacher input is usually decentralized
• Likely that different factors influence the different components
School expenditures Wages Teachers Classes= * * +
Population Teacher Classes Students
non-wage expenditures Students*
Students Population
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Teacher wages
• Positive income effect• Positive effect of the number of students• Positive effect of unions• Effects of the state of the labour market
• References (USA: Craig and Inman, 1982, Luizer and Thornton, 1986, Currie, 1991, Walden and Newmark, 1995, Hoxby, 1996, Vedder and Hall, 2000, Walden and Sogutlu, 2001, Eberts et al, 2002; UK: Bee and Dolton, 1995, Dolton and Robson, 1996; Norway: Falch and Rattsø, 1996, 1997)
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Teacher – student ratio
• Positive income effect• Positive effect of the number of students• Positive effect of unions• Effects of the state of the labour market• Effects of “financial stress”• References
(USA: Thornton, 1979, Craig and Inman, 1982, Currie, 1991, Hoxby, 1996, Figlio, 1997, Flyer and Rosen, 1997; Norway: Falch and Rattsø, 1996, 1997, 1999a; Cross-country: Schultz, 1987, 1988)
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Non-wage spending per student
• The component with highest growth during 1950 – 1990 in the US (Hanushek and Rivkin, 1997)
• Positive income effects
• Smaller effect of number of students than on teacher demand
• References (USA: Craig and Inman, 1982, UK: Taylor and Bradley, 2000; Norway: Falch and Rattsø, 1996, 1999a)
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Enrolment in compulsory education
• Decisions on the number of years of compulsory education
• Little existing evidence
• Likely to depend on the assessed importance of education
• Likely to depend on the “financial stress” in the public sector
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Educational attainment• Demand for tertiary education determined by
individual decision-making. • Standard theory for investment in human capital:
Undertake more education as long asU(Ed) - U(Non-ed) > CostsIf U = the wage W, this can be written
• Optimal education time increases in the wage premium and unemployment, and decreases in the discount rate and study costs
T t*
Ed Non ed Non edt t t t t
t t* t 0
W W W Costs
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• Supply can be restricted by governments by deciding quotas in the universities.
• Can individuals be denied university admission in a globalized educational market?
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Determinants of educational attainment
• Empirical work support the investment theory of human capital
• The wage premium increases attainment (USA: Dellas and Sakellars, 2003; UK: Whitfield and Wilson, 1991, McVicar and Rice, 2001; Sweden: Fredriksson, 1997; Germany: Lauer, 2000)
• More generous financial aid programs increases attainment (USA: Dynarski, 2002, Seftor and Turner, 2002, Long, 2003; Sweden: Fredriksson, 1997; Finland: Häkkinen and Uusitalo, 2003; Germany: Lauer, 2000)
• Tuition decreases attainment • (USA: Survey of Leslie and Brinkman, 1987, indicates an elasticity of -0.6 – -0.8, Kane,
1994, Noorbakhsh and Culp, 2002)
• The real interest rate decreases attainment • (USA: Dellas and Koubi, 2003)
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• Increased unemployment has positive effect (USA: Betts and McFarland,1995, Dellas and Sakellaris, 2003, Dellas and Koubi, 2003; UK: Whitfield and Wilson, 1991, McVicar and Rice, 2001; Finland: Häkkinen and Uusitalo, 2003; Spain: Fernández and Shioji, 2001; Germany: Lauer, 2000)
• University enrolment constraints decrease educational attainment (Sweden: Öckert, 2002; Greece: Psacharopoulos and Papakonstantinou, 2004)
• But, parental background seems to be more important than economic incentives (Kane, 1994, Haveman and Wolfe, 1995, Björklund and Jantti, 1997, Lauer, 2000, Fernández and Shioji, 2001, Pollak and Ginther, 2003)
• What is most important for long term growth?
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Public expenditures in tertiary education
• Ehrenberg (2000). - Rapid increasing costs due to more competition and ”winner-take-all” society - Colleges and universities can be organized in more cost-effective ways.
• Lowrey (2001). US state government funding seems to be negatively related to the share of elderly residents and positively related to tax income.
• Rizzo (2003). Negative effect of increased spending on compulsory education
• Goldin and Katz (1998). High correlation across US states in private enrolment over time
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Potential educational reforms with implications for public sector
expenditures
• Compulsory education. Attempts to increase quality by accountability systems instead of increased spending? (Peterson and West, 2003)
• Previous reforms of compulsory education in Norway determined by politic factors and not by economic factors (Falch and Rattsø, 1999b)
• Tertiary education. Increased competition and private financing? (Johnes and Johnes, 1994, Johnstone, 2004)