The effectiveness of government spending on higher education.
Governments worldwide spend substantial shares of their budgets on education. This category of expenditure is expected to produce direct benefits for the individuals receiving schooling, as well as indirect benefits to society as whole, since education is known to generate positive externalities. Improvements in education are also associated with economic growth and innovation. Few studies, however, have investigated whether public spending on education is effective at achieving the desired direct outcomes, such as improving enrolment, persistence and completion rates, and ensuring lower repeater and dropout rates. The research conducted in this study looks at the effectiveness of government spending on education. The main objective is to measure the impact that government spending has on all levels of education: primary, secondary and tertiary, for a panel of countries over the period 1990 to 2010. This paper extends previous research since it uses panel data methods and compares how government spending relates to a number of educational outcomes, as defined in previous studies, at the three broad education levels. This study also highlights the differences in the relationships of interest between developed and developing countries. The study uses panel data methods and controls for population age, health, urbanisation and country fixed effects where necessary. Instrumental variable methods are used in an attempt to address the circular causality between public spending and educational outcomes. The analysis shows that government spending is not highly correlated with educational outcomes, defined as enrolment, persistence and repeater rates, on all levels of education. Government spending on higher education appears to be the most effective.