Education outlay, fiscal transfer, and inter-region funding equity: a county-level analysis of education finance in China

Abstract

Over the past three decades, education finance in China has transitioned, against the background of high economic growth and fast socio-political development, from a local-only financing regime to a new regime that involves a combination of local, provincial and central funding. Beginning in year 2000, the central and provincial governments have stepped in to reduce inter-region disparity and to improve equity and the overall quality of basic education throughout China’s vast rural areas. The fast-track transition provides a good window for scholars to study the impact of the changing education finance regimes. The paper analyses the differential effects of the local, provincial and central funding levels on the within-province equity of education finance, and provides evidence on how policy shocks in a fast growing economy can affect education provision in a transitioning system. We test the differential effects of the financing regime transition on the equity of education finance, taking advantage of provincial level data and a panel data set of county-level jurisdictions across the country. With a constructed inequity index, we examine the impact of policy shocks, controlling for multiple factors. While our results suggest the measures taken may have dampened growth in inequity, they do not provide evidence of improved equity overall, revealing that disparity is still growing between developed and less developed counties.

Keywords:

• Education finance
• disparity
• inequity
• China

Notes

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Funding

This research was funded by a grant (2007–2010) from the Center for Industrial Development and Environmental Governance (CIDEG), Tsinghua University, China.

Notes on contributors

Ping Zhang is Assistant Professor in the School of International Relations and Public Affairs at Fudan University, Shanghai, China. He got his PhD in public administration and policy from the University of Georgia, USA. His research interests include property taxation, intergovernmental fiscal relations, and local governance.

Zizhou Bu is a specialist at the Human Resources Department of the China Life Insurance Company Ltd. He got his PhD from the School of Public Policy and Management of Tsinghua University, Beijing, China.

Youqiang Wang is Professor at the School of Public Policy and Management of Tsinghua University, Beijing, China. He holds a Ph.D. in economics (University of Maryland) and in mathematics (University of Ohio, both USA). His research interests include public economics, governance, and leadership management.

Yilin Hou is Professor at the Maxwell School of Citizenship and Public Affairs of Syracuse University, USA. He holds an MA and PhD in public administration from Syracuse University. His research interests and publications cover fiscal policy and institutions, state and local taxation, intergovernmental fiscal relations, and intellectual development of public budgeting.

Notes

1 Berne and Stiefel, “Measuring Equity at the School Level: The Finance Perspective,” 405–421.

2 Duncombe and Yinger, “School Finance Reform: Aid Formulas and Equity Objectives,” 239–262.

3 Murray, Evans, and Schwab, “Education-Finance Reform and the Distribution of Education Resources,” 789–812.

4 Rubenstein, Ballal, Stiefel, and Schwartz, “Equity and Accountability,” 1–22.

5 Baicker and Gordon, “The Effect of State Education Finance Reform on Total Local Resources,” 1519–1535.

6 Besley and Coate, “Centralized Versus Decentralized Provision of Local Public Goods,” 2611–2637.

7 Andrews, Duncombe, and Yinger, “Revisiting Economies of Size in American Education,” 245–262.

8 Wang, “County Government Educational Budgeting in China.”

9 Liu, “Education Equity under Market Economy: Problems and Institutional Arrangement.”

10 Yang, “From Equality of Right to Equality of Opportunity.”

11 Even though not published, statistics on these were collected by relevant government agencies. Wang (2001), Zeng and Ding (2003, 2005) are studies that use local level education finance statistics collected by the Ministry of Education.

12 Hou, Bu, and Wang, http://ssrn.com/abstract=1596289 or http://dx.doi.org/10.2139/ssrn.1596289

13 Note that some of the four variables may be highly correlated, especially GDP and savings in the bank. We tested the correlation between each pair of them and confirmed that there is no collinearity problem in the regressions.

14 A third category is called “tax returns” which are not transfers but a transitional measure as a result of the central- provincial bargains in the 1994 tax reform. In this study we do not consider the tax returns as real transfers. However, these are included in the total transfers.

15 As the tax returns are generated entirely locally, we also add the tax returns to the own-source revenue as alternative tests for each regression and find that the effects are even more significant which confirms our overall results.

16 Wu and Wang, “Determinants of Expenditure Decentralization,” 176–184.