Issues in Education PERs and Modeling Fiscal Implications of Education Policies

1. Issues in Education PERs and Modeling Fiscal Implications of Education Policies Sajitha Bashir April 25, 2007 Public Finance Analysis and Management Course, World Bank

2. Today’s Agenda Introduction Part 1 Issues in Education Public Expenditure Reviews Part 2 Modeling the fiscal implications of education policies

3. Why analyze public spending in education? (1) • Poverty reduction strategy requires programs/policies that • Augment labor force productivity • Enhance equity • Education contributes to both objectives • But other programs are also required • And resources are constrained

4. Why analyze public spending in education? (2) • Spending on education represents a high proportion of government expenditure • Especially of recurrent expenditure • High recurrent: capital ratio means that any expansion has significant recurrent cost implications

5. Is there a rationale for public funding? • Should government finance education? • Externalities: health/fertility/citizenship/gender • Non-competitive markets: small rural communities • Information asymmetries: illiterate people can’t judge quality • Improve equity: rectify historical injustices • Even if justified in general, does not mean all expenditures on education are justified • Do sectoral objectives and expenditures relate to justifications?

6. Is there a rationale for public provision? • Public funding may be justified but is it better to use private sector as provider? • provide per pupil subsidies to private schools • Subsidise teacher salaries? Vouchers? • If public provision is justified, are public programs effective/efficient? • Can outcomes be improved by changing size and distribution of allocations?

7. Private Provision and Financing • PERs should take into account • Extent of private provision by level of education (usually high for secondary/tertiary) • Reasons why private sector does not exist • Equity implications of private provision • Private costs to households of accessing public educational institutions • Students spend on textbooks/tutoring

8. Part 1 • Issues in Education Public Expenditure Reviews • Using the Education PER Guidelines

9. PER Guidelines for Education • Companion Guidelines to those for health and social protection PERs • Should be used with Common Guidelines for all HD sectors • Available in hard copy, website, and CD ROM • Structure: Brief Guidelines with notes and examples

10. How much is spent—and how much does government spend? How does government finance? What does government finance? Does public spending protect equity? Is the public getting its money’s worth? How much is enough? Is spending adequate & sustainable? The Education Guidelines Cover These Questions

11. Narrow ---------------------------- One level & type of education—e.g., public primary education Broad ---------------------------- All levels and types of education—e.g., public and private, academic and vocational secondary & post-secondary Using the GuidelinesDefine the Sector

12. Use data to isolate issues and issues to focus data collection and analysis • Issue: decentralization. Go after these questions in the guidelines. How does government finance? How does government finance? Does public spending protect equity?

13. Issue: How much is the country spending on education? Not simple. Check question 1 of your Guidelines. • Actual, not planned, expenditures. • Net of social protection expenditures delivered through schools. MoE expenditures Local expenditures Other ministry expenditures Donor funding Private expenditures (households, employers)

14. Issue: Equity Check question 5 in the Guidelines. Public policies and public financing affect equity of education in obvious & subtle ways. Corruption favors rich Merit-based scholarships favor rich Share of consumption poor pay for school is often disproportionate Selection-based progression favors rich

15. Be selective about what questions to address • Overall purpose of PER? • Improve efficiency, effectiveness and equity in provision of services? • Assess feasibility of new policy objectives? • Data availability? • Issues of most interest to policy makers?

16. Is the public getting its money’s worth? • Are public resources being used efficiently and effectively? • Four types of efficiency: • Allocative • Technical • Internal • External

17. Allocative Efficiency • Is the marginal dollar better spent on a different sector (e.g., roads)? How would you know? • Is the marginal dollar better spent on a different level of education (e.g., basic rather than tertiary education)? How would you know? (Returns to education? Ratios of unit costs for different levels of education?)

18. Technical Efficiency • Big ticket items:, labor, textbooks, capital expenditures • Big drivers: factors that affect enrollment numbers (demography, policies such as universal free primary education or redefining compulsory education from grade 8 to 10). What will these factors save? Cost?

21. Main sources of inefficiency • Management of current expenditures • Remember large share of current spending, especially salaries • However, focus on investment also if major infrastructural expansion is planned • Has recurrent cost implications • Primary education in LDCs • Secondary/higher in Middle income countries

22. Technical Efficiency: Labor • Student/teacher ratios too high/too low? • Student/non-teaching staff ratios too high/too low? • Teacher teaching loads (class hours/week) too high/too low? • Wages adequate to attract and retain teachers of required quality? Comparisons: GDP per capita, average wage for a public sector technocrat, average wage for private sector workers with qualifications similar to those for teachers (labor force or household budget surveys)

24. F Per Pupil Recurrent Expenditure by Level of Education in PPP U.S. Dollars for Algeria and Other Countries, 2002–03 Source: OECD, World Bank, and Bank staff calculations. Note: MENA country data is for 2003; OECD data is for 2002.

26. Technical Efficiency: Textbooks • Look for overloaded curricula that multiply number of required textbooks (and depress learning) • Do textbook policies protect equity and efficiency—e.g., textbook rental schemes? Re-use schemes?

27. Internal Efficiency: Dropout, Repetition, Completion Rates, Learning Outcomes • Dropout rates: usually best measured with household surveys. • Repetition rates: huge and extremely costly in some regions, e.g., LAC. How much could the system save if it got education done right the first time? • Completion rates: share of student cohort that completes a given segment of school (e.g., lower secondary) that should confer a coherent set of skills? • Learning outcomes relative to standards? Check international assessments! Poor outcomes imply need to invest in quality. High variances in outcomes imply need to invest in equitable quality.

28. Comparative Performance of 15 Year Olds on OECD’s PISA (2000)

29. MLA 2 test scores and per capita income, Algeria and other countries (lower secondary)

30. Algeria – 8th grade average math score and class size The plot of the class average test score in mathematics against the size of the class shows negligible correlation. Class sizes range from about 16 to 50.

31. External Efficiency: Labor Market Payoffs Look for: • Learning assessments that are linked to employers’ skill needs (e.g., PISA, IALS) • Returns to education • Employment, unemployment, labor force participation rates • Tracer studies • Poor payoffs may imply a weak economy or the need to invest in realigning competencies that schools produce to the labor market.

32. Technical Efficiency: Capital • Cost-effectiveness of construction? • Rational basis for constructing new schools? Closing/consolidating under-used schools? • Transparent procurement of civil works? • Efficient use of school network –e.g., class sizes that balance quality instruction with efficient use of capacity? Use of double shifts? • Downstream savings attributable to basic maintenance now?

33. Factors affecting construction costs • Curriculum choices • Also affects recurrent expenditures • Planning norms • Proximity/Geographical equity • Technical standards and norms • Space per student • Materials • Procurement practices

34. Investment vs recurrent costs- Madagascar primary • Initial investment cost - $ 11,000/room • Annualized cost per room - $ 700 • Per pupil annual teacher salary • Civil servant: $ 30 • Local teacher: $ 8 • Class size : 40 • Per class annual capital cost/ teacher cost • 0.60 if you use civil servant teachers • 2.20 if you use local teachers • Are these your priorities? What trade-offs are possible?

35. Causes for cost variation • Primary classroom costs in Madagascar vary by project and estimation method • $ 8000- 32,000 (study estimates) or $ 5500- 42,000 (MENRS) • Donor projects most expensive ! • Cost variation due to • Norms (per pupil area) • Technical standards (anti-cyclonic; maintenance) • Procurement practices (centralized) • Algeria • $ 17,000 per room; 2 sq metre per pupil vs 1 -1.5 sq metre internationally

36. Cost Analysis of School Construction Options

37. Data such as these tell you where money should be spent and where it can be saved. They guide the selection of scenarios and of the assumptions that enter into them.

38. Modeling & Selecting Scenarios to Model Modeling lets you: • check the joint implications of government policies for the sector’s fiscal adequacy and sustainability. • show the fiscal implications of alternative policies that government could feasibly adopt.