SABER School Finance: What makes an school finance system effective?*

Transcription

1 SABER School Finance: What makes an school finance system effective?* Ensuring Adequacy Education Finance Performing Efficiently Promoting Equity Summary: SABER - School Finance is a framework that guides the collection of standard data to characterize and assess school finance systems around the world. SABER - School Finance collects data on school finance systems along five core areas, including allocation mechanisms, revenue sources, education spending, school conditions and resources, and fiscal control and capacity. This information is used to classify school finance systems according to their level of development in the three essential policy goals of Ensuring Adequacy, Promoting Equity, and Performing Efficiently. This analytical tool is one in a larger set developed by the Education Unit of the World Bank to provide guidance to education policymakers. *This note was written by core members of The World Bank s team of the project, SABER - School Finance: Emiliana Vegas (Lead Education Economist, Human Development Department and Task Team Leader) and Chelsea Coffin (Extended Term Consultant, Human Development Department). The team is grateful for advice and input from Helen Ladd (Consultant, Edgar T. Thompson Professor of Public Policy and Economics, Sanford School of Public Policy, Duke University), David Plank (Consultant, Economist, Policy Analysis for California Education (PACE)), Andrew Reschovsky (Consultant, Professor of Public Affairs and Applied Economics, LaFollette School of Public Affairs, University of Wisconsin), Halsey Rogers (Lead Economist, HDNED), and Deon Filmer (Lead Economist, AFTHD).

2 Contents Introduction... 3 Why is it important to assess school finance systems?... 4 How does SABER - School Finance assess and characterize school finance systems?... 4 SABER - School Finance Framework... 4 How will SABER - School Finance assess school finance systems?... 8 Policy Levers and Indicators by Goal Performance by level of development, for each Policy Goal What are some examples of effective school finance systems? Implementation References

3 Introduction School finance is one of several areas of study in a larger World Bank initiative, System Assessment and Benchmarking for Education Results (SABER). SABER helps countries systematically examine and strengthen the performance of their education systems to achieve learning for all. The Education Unit of the World Bank is working with partners around the world to develop diagnostic tools that assess and benchmark education policies according to evidence-based global standards and best practice. By leveraging global knowledge, SABER fills a gap in the availability of policy data, information and knowledge on what matters most to improve the quality of education. School finance systems are responsible for providing the funds necessary to implement education policies. The quality of an school finance system potentially impacts a large share of the population: school-age children may reach about a quarter of the total population, 1 and teachers may comprise a substantial share of the total number of government employees (Guthrie, et al. 2007). Indeed, education often consumes the largest share of government spending. However, effectively providing resources to schools is complex and requires that both public finance and education objectives be met. In an school finance system, a diverse set of actors and stakeholders with different perspectives and motivations manage the flow of resources and hold other actors accountable (see Figure 1). Policymakers establish education objectives as well as guidelines for their regulation and execution. Education authorities transform these goals into plans, and financial authorities provide supporting resources. The financial authorities that provide funding often operate separately from education authorities that use the funds. Even within an education agency, school finance experts may not be fully integrated into the rest of the agency, which may complicate the efficient use of resources. Finally, at the school level, resources are used for their ultimate purpose of funding teachers, learning materials, and other support so that all children, as beneficiaries, have the opportunity to learn. Figure 1: Actors in the school finance system Provide and use resources Policymakers Legislature Executive Management Education authorities Management Financial authorities Providers Schools Teachers Beneficiaries Students Parents All children learn Stay accountable 1 School-age population calculated with data from the World Bank s EdStats database on the population aged 5-18 as a share of the total, for all countries with available data in

4 Why is it important to assess school finance systems? All education systems rely on financing to function. Education spending is necessary to bring about learning outcomes; it facilitates the provision of essential inputs such as teachers, school buildings, and learning materials. Availability of financial resources does not guarantee a quality education, but a quality education is impossible to achieve without adequate resources (Reschovsky & Imazeki 2001; Clune 1994). The drivers of a well-functioning school finance system have not been established. How resources for education should be used is often controversial. Non-school factors, as opposed to education spending, may be the strongest influence on student performance (Hanushek 1986; Coleman, et al. 1966). However, some uses of education expenditure can make a difference, particularly in the cases of inputs that directly benefit students or resources that compensate for challenges of low-income settings (Heyneman & Loxley 1983; Fuller & Clarke 1994; Pritchett & Filmer 1999; Ferguson & Ladd 1996). School finance is complicated by how to identify and use the proper mechanisms for resource distribution that will ensure that funds reach students and schools. Although education funding has the potential to improve education quality for all, school finance remains an area in need of direction. Policy guidance is necessary to use funding in a way that both achieves education goals and addresses public financial management issues. Governments have a strong incentive to use education resources effectively. Education expenditure represents a large share of total public expenditure in many countries, which often signals education as a national priority. Many education systems seek to raise the quality of education in addition to increasing access, even as many government budgets around the world are shrinking due to the recent economic crisis. At the same time, the use of public funds is under increased scrutiny due to growing interest in public financial accountability. School finance merits a sector-specific analysis. How does SABER - School Finance assess and characterize school finance systems? SABER - School Finance identifies essential school finance policy goals and enables systems to measure progress toward meeting these goals. SABER - School Finance provides a framework for analyzing the management of education resources for education policy-makers, researchers, and stakeholders (including World Bank operations staff). The project collects data on school finance policies, practices, and outcomes around the world, and uses this information to classify systems according to their progress toward meeting core policy goals of school finance. The focus of the initiative is the design of school finance policies as opposed to their implementation on the ground. A number of complementary activities will be looking at implementation in a sample of countries, as this will involve a different methodological approach and will require more financial and human resources. SABER - School Finance Framework SABER - School Finance has developed a methodological approach to document and examine the effectiveness of school finance systems. To do so, the team reviewed benchmarking exercises 4

5 previously carried out by the World Bank and other development organizations, information available from international databases, research studies of the relationship between funding and education outcomes, and empirical evidence on the effectiveness of school finance systems. The team also consulted with World Bank and external experts with deep knowledge of education and public finance systems to determine what matters most in school finance. The SABER - School Finance approach consists of data collection along five core areas used to characterize the school finance system, and three policy goals used to assess how well developed is the system. All data that inform policy goals are also included in a core area, but not all information collected for the core areas is used to assess policy goals. The core areas and policy goals are presented in Figure 2, and described in further detail below. Figure 2: Policy Areas and Goals School Conditions and Resources Ensuring Adequacy Fiscal Control and Capacity Policy Areas Allocation Mechanisms Policy Goals Performing Efficiently Promoting Equity Education Spending Revenue Sources Core Areas: What does an school finance system do? The process of providing funding to schools is complex. Education budgets allocate the funds with matching revenue that are necessary to meet the goals and objectives of education policies. In a majority of systems, these requisite funds are transferred through at least one level of government before arriving at schools, where funds are finally spent to represent policy objectives. How well an school finance system provides resources for schooling is highly influential to education results. To describe these essential functions of an school finance system, SABER - School Finance will collect information along five core areas: (i) School Conditions and Resources; (ii) Allocation Mechanisms; (iii) Revenue Sources; (iv) Education Spending; and (v) Fiscal Control and Capacity. 5

6 School Conditions and Resources Schools should meet minimum quality standards that include essential teaching inputs, instructional conditions, and other basic resources to attract students and teachers and also provide an adequate learning environment. Policies to provide and systems to monitor these inputs are the first steps. Although a consistent relationship has not been established between specific school resources as measured by learning materials, student-teacher ratios, teacher experience and qualifications, and spending per student, a lack of critical inputs is likely to negatively influence learning outcomes (Harbison & Hanushek 1992; Glewwe, et al. 1995; Tan, et al. 1997). Allocation Mechanisms The education budget is the government s plan for allocating public resources to achieve educational goals and objectives. Every school finance system has rules (informal and/or formal) that determine the size of the budget, distribution of resources across levels of government and schools, and in some cases, the nature of spending among different inputs such as capital and current needs. These rules that govern resources flows, as well as the amount of discretion and autonomy at each level to allocate budgets affect the level of accountability, transparency, and performance in the system (Das, et al. 2004). National, subnational, and local levels of education authorities as well as schools may allocate budgets differently, or they may have no budget or no budgetary authority at all. Throughout the system, good use of information and analysis in allocation decisions can increase the amount of government resources dedicated to the education sector and improve efficiency of spending. Revenue sources Education systems need to raise sufficient revenues to ensure that, if used efficiently, students may reach appropriate learning goals at each education level. While increasing efficiency in the use of public resources is one strategy to enhance outcomes, systems often look to additional funding sources, including international donors or the private sector, including households. The sources of funding and the mechanisms through which revenues are raised have implications for adequacy, sustainability, and equity. A big challenge for many countries is to raise adequate revenue to expand enrollment while maintaining, or even raising, school quality. Some levels of government or schools may be restricted from raising revenue or from using it for certain purposes. In addition, variation in fiscal capacity to generate revenue by subnational or local division may create wide disparities in resources available for learning, which can be addressed with redistributive intergovernmental grants (OECD 2002). The composition and amount of revenue may differ across systems, but an appropriate balance among possible revenue sources is necessary. Education Spending Education spending represents the point at which monetary resources begin to promote learning outcomes. National, subnational, or local governments, the private sector, and sometimes even international actors may spend money on public education. Education systems may vary by their ability to generate resources for education, or by their effort relative to national wealth or government 6

7 spending. Also, it is important to consider the amount of expenditure adjusted by the number of students for the magnitude of real education spending, as well as the change in per pupil expenditures over time for the degree of stability and predictability in spending. In addition, differentiated spending may increase equity across student groups such as ethnicity, native language, socio-economic status, or special needs (Oosterbeek & Patrinos 2008). The composition of spending also influences the quality of education, such as how much is spent on teacher salaries or the central office. Fiscal Control and Capacity A crucial area for understanding school finance systems is the fiscal control mechanisms used to plan, monitor, and execute the education budget. If resources are not used for their intended purpose, it is unlikely that education services will be of adequate quality. Providing policymakers and even the public with comprehensive and timely information on the government's budget and financial activities, will strengthen oversight and improve policy choices. The system should monitor the transfer and use of resources down to the school level and use audits to understand how spending deviates from the original budget (Reinikka & Svensson 2004; Loayza, et al. 2011; McCarten 2003). Policy Goals: How can school finance systems be effective? After identifying how a school finance system functions, the next step is to determine if it is functioning well. The team identified three policy goals widely shared across countries that will allow school finance systems to provide resources so that children can learn, using 3 policy goals widely shared across countries: (i) Ensuring Adequacy; (ii) Promoting Equity; and (iii) Performing Efficiently, described below. Adequacy and equity are foundational concepts in school finance that compel systems to provide a minimum amount of necessary resources for all students to learn regardless of their background (Underwood 1995). Efficiency in school finance involves a close look at how the funds that meet these policy goals are allocated, distributed, and monitored. Ensuring Adequacy Ensuring Adequacy assesses the extent to which school finance systems provide adequate resources to ensure that all students have the opportunity to receive a high quality basic education. Although standards of student achievement, as well as the costs to reach those standards may vary across countries and student groups, there is a minimum amount of resources required to produce learning outcomes. While precise figures of this minimum amount of resources have proved difficult to estimate, if students do not have access to a fundamental set of resources they will not be able to acquire the knowledge and skills necessary to be able to survive, to develop their full capacities, to live and work in dignity, to participate fully in development, to improve the quality of their lives, to make informed decisions, and to continue learning, that define high quality education in the Jomtien Declaration on Education For All. Ensuring Adequacy requires both political and financial commitment. Promoting Equity Promoting Equity evaluates the extent to which school finance systems seek to improve education outcomes for students from disadvantaged backgrounds and reduce outcome gaps among groups of 7

8 students. Access and success in education should not depend on a person s background (Oosterbeek & Patrinos 2009). Yet, in most settings, as poverty increases, enrollment decreases (Glick & Sahn 2009). Educational attainment differs due to income level differences across countries but also to an equal or even greater extent by socio-economic background within countries (Filmer 2008), making it imperative to document how governments address inequality in access to education resources. Unlike adequacy, which requires an absolute amount of resources, equity is a relative concept in which funds should be allocated based on students needs. Equity can be difficult to measure, but the objective is to promote equal opportunities by fairly providing unequal resources to students with differing educational challenges. Performing Efficiently Performing Efficiently examines the extent to which school finance systems promote effective use of resources in a transparent and accountable manner. Quality of education measured by learning outcomes varies, even within systems that spend similar amounts per pupil (Wagstaff & Wang 2011). An increase in public spending on education does not guarantee an improvement in outcomes, which may be a result of poor governance in the school finance system (Andrews & Campos 2003). Although efficiency in education usually compares outcomes (attainment, test scores, or drop-out rates) to expenditures, SABER - School Finance will examine the mechanisms that influence these outcomes. Given recent growth in enrollments and unprecedented fiscal pressures, it is more important than ever that resources are used to maximize student learning, in particular in developing countries where education expenses are a high priority for government expenditures. How will SABER - School Finance assess school finance systems? SABER - School Finance will provide an assessment of a particular school finance system in each of the three policy goals. The rating for each SABER - School Finance policy goal will be determined by progress in relevant policy levers, which are observable actions taken to reach these goals. For each policy lever, a set of indicators show the extent to which governments use these policy levers. A review of the evidence on each policy goal informed the selection of policy levers for each goal. Similarly, a review of existing research informed the selection of indicators to measure the extent to which a system is using the policy levers at its disposal to achieve each policy goal, as well as gaps in this information that would serve as useful additional indicators. The SABER - School Finance policy goals, and the corresponding levers, are in Figure 3 below. A full list of all the indicators by policy lever and goal is outlined in the following section, Policy Levers and Indicators by Goal. 8

9 Figure 3: School finance: Role, Policy Goals, and Policy Levers Role Policy Goals Policy Levers Are there policies and systems set up to provide basic educational inputs to all? Provide resources so that all children can learn Ensuring Adequacy Promoting Equity Performing Efficiently Are there basic educational inputs for all primary school students? Are there basic educational inputs for all secondary school students? Is the government making adequate effort in education? Does the government provide more resources to students from disadvantaged backgrounds? Do payments for schooling represent a high share of income for low income households? Are resources allocated and disbursed in a manner that is transparent and effective? Do reporting and auditing processes encourage accountability in the use of funding? Are there mechanisms in place to facilitate that resources reach the point of service delivery? For each indicator, SABER - School Finance then established different levels of system performance based on school finance in successful education systems so that systems can evaluate and improve their level of performance in school finance. To define these levels, SABER - School Finance researched progress in school finance indicators by 20 successful education systems, identified by the SABER Teachers team using a database of standardized test scores, 2 to show the extent to which they met essential financing policy goals (see Figure 4 for a list of systems by type). School finance is not the only factor that determines student achievement in these systems, but documentation of real world school finance policies and practices of successful systems adds to existing knowledge on what works in school finance, as studies rarely allow for system-wide interventions. For some variation in policy and characteristics, education systems were chosen based on four measures of success: 1. Top-performing and rapidly-improving: These are the top five performers in the general universal scale (i.e., combining primary and secondary) with either long-term or short-term but statistically significant improvements in this scale. 2 The SABER Teachers team identified successful education systems using trends in the Altinok, Diebolt, and Meuleester (2010) database of standardized scores on international assessments that are comparable across subjects, assessment, and year of examination. For a full explanation of the dataset and methodology, please see Vegas, E. and Ganimian, A. J. (2011). What are Teacher Policies of Top-performing and Rapidly-improving Education Systems? Washington, DC: The World Bank. 9

10 2. Top-performing: These are the top five performers in the general universal scale (i.e., combining primary and secondary), excluding repeat countries from the previous group. 3. Rapidly-improving in the long-term: These are the top five improvers in the general universal scale (i.e., combining primary and secondary) in the period, excluding repeat countries from the previous groups. 4. Rapidly-improving in the short-term: These are the top five statistically significant improvers in the general universal scale (i.e., combining primary and secondary) in the period, excluding repeat countries from the previous groups. Figure 4: Successful education systems by type Top-performing and rapidly improving Top-performing Rapidly-improving (long-term) Rapidly-improving (short-term) Hong-Kong (China) Japan Chile Ghana Canada Taipei (China) Iran Armenia Finland Hungary Luxembourg Lebanon Belgium Singapore Israel Mexico South Korea Netherlands New Zealand Indonesia SABER - School Finance used the outcomes and meaningful variation between types of systems to determine a certain acceptable standard of performance in each indicator. SABER - School Finance established criteria for each indicator around this minimum standard for four levels of development : Latent (the system does not meet the acceptable standard), Emerging (the system shows progress toward meeting the acceptable standard), Established (the system meets the acceptable standard) and Advanced (the system is above the acceptable standard). In order to calculate a system s performance on each indicator, SABER - School Finance assigned a GPA-style numerical score to each level of development, from 1 for Latent to 4 for Advanced. Whenever successful systems offered incomplete or mixed guidance, SABER - School Finance relied on the impact evaluation evidence and expert opinion to establish these four levels. Data from successful education systems were available for about 60% of indicators for at least some successful systems, with the largest gap in available information in the policy goal of Performing Efficiently. Then, SABER - School Finance developed a data collection instrument to collect information on school finance systems for each indicator. SABER - School Finance linked each indicator to one (or more) questions from its questionnaire, and used external data as available for other indicators. There are likely to be adjustments to these indicators and the questionnaire in the future, as more systems participate in SABER - School Finance and the team continues to learn about how to adequately classify an school finance system. In order to classify an education system, SABER - School Finance draws on its data to assign a score to each indicator, average the scores for all indicators in each policy lever and ultimately average the scores for all levers in each policy goal. SABER - School Finance (as do other SABER domains) classifies school finance systems by following a simple three-step process: first, it uses the data from the 10

11 questions linked to each indicator to score each indicator individually on a scale of 1 through 4; then, it does a simple average of the scores for all indicators within each policy lever to obtain a score and thus, a level of development for that lever; 3 and finally, it does a simple average of the scores for all policy levers within each policy goal to obtain a score and a level of development for that goal. 4 The decision to use simple averages to calculate the scores for the policy goals and levers was made not only because there is no strong empirical basis on which SABER - School Finance could decide to assign different weights to some indicators or levers, but also to keep the calculations as easy-to-understand as possible to non-technical audiences. It is important to note that while SABER - School Finance uses numerical scores to calculate the levels of development, it only displays the latter. This decision was made to keep the emphasis of the classification on helping education systems improve and to discourage comparisons across systems based solely on the numerical scores. The cut-off scores for the averages for the policy goals and levers were chosen so that systems had an equal probability of falling into any of the classifications. Figure 5 below shows the cut-off scores for the averages used for the goals and levers. Whenever a score falls exactly between.05 and.06, it is considered to fall in the higher level (i.e., all mid-points are rounded up). So, for example, if an education system obtains a score of 1.755, it is considered to be Emerging, not Latent. These cut-off scores allow systems to be classified in any of the four levels. Figure 5: Cut-Off Scores for Each Level of Development Source: Vegas, et al The calculations of the levels of development of each policy goal and lever are consistently used to classify all education systems in the same way. While any effort that seeks to classify the school finance systems will invariably be subjective, the fact that SABER - School Finance has adopted a clear set of criteria and applies them consistently enhances the transparency of the classification process. Policy Levers and Indicators by Goal As mentioned earlier, the team chose policy levers for each goal that propose which actions a government can take to improve school finance systems. Progress in each lever is measured by an 3 For example, if a lever has three indicators with scores 1, 2 and 3, the overall score for that lever is 1+2+3=6/3=2. 4 For example, if a goal has three levers with scores 2, 3 and 4, the overall score for that goal is 2+3+4=9/3=3. 11

12 average of outcomes in relevant indicators. This section outlines the evidence that supports each policy goal, lever, and underlying indicator in the SABER Finance framework. Policy Goal 1: Ensuring Adequacy Do school finance systems provide adequate resources to ensure that all students have the opportunity to receive a high quality basic education? SABER - School Finance uses four policy levers to assess progress in this policy goal: (A) Are there policies and systems set up to provide basic educational inputs to all?; (B) Are there basic educational inputs for all primary school students?; (C) Are there basic educational inputs for all secondary school students?; and (D) Is the government making adequate effort in education? Policy Lever 1A: Are there policies and systems set up to provide basic educational inputs to all? A review of government policies on provision of inputs reveals the level of commitment to improving the basic learning environment in schools. Having policies in place is the first step to ensuring coverage for all students, and systems to monitor their provision will allow governments to measure the success of implementation. This is especially true in weak institutional environments where budget allocation does not necessarily transform into effective school expenditure due to a lack of accountability (Ablo and Reinikka 1998). 1. Are there policies in place to ensure that basic educational inputs are provided? To ensure adequacy, schools must provide a minimum set of inputs that are necessary for student learning. The process of translating these inputs into learning outcomes is very complex (Goldhaber & Brewer 1997), but school finance policies should stipulate which inputs should be provided so that funding may be allocated appropriately. Many school finance systems allocate resources on a perstudent or per-school basis to supply sufficient inputs with a foundation grant. Although there is no way to precisely estimate the cost of education, the inputs these grants intend to provide should be explicitly defined so that funding may approximately cover the cost. Ideally, these policies should balance the need for school autonomy in expenditures with the need for accountability in the use of funds. This indicator will assess the extent to which policies are in place to ensure the following inputs are available to all students: basic infrastructure, potable water, functional hygienic facilities, qualified teachers, computers, and libraries. 2. Are there systems to monitor whether basic educational inputs are provided? Policies to provide basic educational inputs do not guarantee that these inputs are available in all schools. School finance systems must report the extent to which these policies are implemented. A system to monitor education inputs can be a tool for accountability in the use of funding at the school level as well as a way to improve budget plans. Policymakers will be able to use knowledge of input availability to redirect resources to the neediest schools or to take action with schools that do not provide the desired inputs. This indicator will document whether there is a system to monitor the provision of basic educational inputs (listed in the previous indicator) at the school level. 12

13 Policy Lever 1B: Are there basic educational inputs for all primary school students? The precise relationship between education spending, inputs, and outcomes is complicated to estimate. Desired outputs are not always clear, critical inputs are hard to identify, and it is difficult to account for quality teachers and student characteristics (Rice & Schwartz 2008; Hanushek 1986). Research evidence also puts in question whether school inputs can outweigh the influence of non-school factors (Coleman, et al. 1966). However, findings show that some school inputs and, therefore, some educational investments positively impact school outcomes if used effectively (Pritchett & Filmer 1999). Spending on education can be particularly important in low-income settings or where enrollment is not yet universal (Heyneman & Loxley 1983; Harbison and Hanushek (1992); Fuller & Clarke 1994; Lloyd et al., 2000). Although debate continues over the influence of better qualified teachers, smaller class size, a focus on academic fundamentals, or use of technology, there is agreement that how education funds are spent is more important than how much is spent. SABER - School Finance has identified seven key quantifiable inputs that an adequate system should provide on a sufficient scale both on average nationally and, ideally, between student groups. An absence of these critical inputs, which means inadequate funding for education, will likely result in low learning outcomes. We use eight indicators to examine the extent to which school finance systems ensure the provision of basic educational inputs for primary school students: 1. What is the share of primary schools that meet the standards for basic infrastructure? Minimum standards for basic school infrastructure, or the physical aspects of the learning environment, particularly school buildings, may require an acceptable roof, floor, walls or other components. Funding is often necessary to improve these facilities. In some settings, the better visible quality of a school may make parents more likely to send their children to school (Glewwe 1994). After children are in school, the quality of school infrastructure can affect student learning, sometimes even more than other inputs (Harbison & Hanushek 1992; Bacolod & Tobias 2006). Better school infrastructure also makes it easier to attract and retain better teachers through better working conditions (Vegas, et al. 2010), and improves teacher attendance (Chaudhury, et al. 2006). Infrastructure standards can ensure that schools provide an acceptable learning environment. Therefore, SABER - School Finance uses as one indicator for this policy lever the share of public schools that meets official infrastructure standards, as set by the system of interest. 2. What proportion of primary school students has access to potable water? Safe drinking water improves the health of children and teachers by reducing the spread of disease. Healthy children learn more effectively, and healthy teachers are more likely to attend school and perform better (Adams, et al. 2009). In addition, student attendance is likely to increase if students drink safe water and therefore face a lower risk of worm infection (Miguel & Kremer 2004). Therefore, SABER - School Finance uses as an indicator the proportion of students that has access to potable water at school, or (in the case that these data are unavailable) as a proxy indicator, the share of schools that has installed and maintains a safe source for drinking water. 3. What proportion of primary school students has access to functional hygienic facilities? 13

14 Functional hygienic facilities (toilets or latrines as appropriate) promote greater gender equity in access to education (Adams, et al. 2009) and increase teachers motivation to attend school (Vegas, et al. 2010). Lack of facilities may discourage parents from sending children, especially girls, to school, which becomes more of a deterrent during puberty. Some schools, particularly in developing countries, do not have these facilities in place. Another indicator of this policy lever is, therefore, the proportion of students that has access to functional hygienic facilities if reported, otherwise the share of schools that installs and maintains these facilities. 4. How many primary school students are there per teacher? The number of students per classroom and teacher is a crucial issue for school finance because the majority of education expenditure is often devoted to paying teacher salaries (Hanushek 1986). The ideal number of students per teacher is not known, but lower class sizes can improve in-class interaction (Angrist & Lavy 1999; Bloom, et al. 2010; Case & Deaton 1999; Krueger & Whitmore 2001; Urquiola 2006), although the jury is still out regarding whether they improve student outcomes (Krueger 2002). In part, the absence of a causal relationship between class size and student learning outcomes may be due to the endogenous decisions that school administrators make in assigning students to classrooms and teachers (Lazear 2001). Larger class sizes have the potential to free up resources for other uses, but potentially at the cost of decreasing the quality of classroom interaction (Averett & McLennan 2004). Although this indicator would ideally address class sizes, student-teacher ratios are used as a proxy because these data are more readily available. SABER - School Finance uses as an indicator the average student-teacher ratio at the national level to examine the ways in which education systems balance the tradeoff between spending on teachers salaries and oversized classes. 5. What is the percent of primary school teachers who are qualified? Requirements for teaching are important because not all promising entrants into teacher training programs will become effective teachers, and not all who enter the profession will do so through pre-service training programs. Observables (such as classroom experience, educational attainment, or certification status) account for a small share of variation in teacher performance (Goldhaber 2002; Rivkin, et al. 2005). No single observable can predict teacher effectiveness, but a combination of multiple measures can help identify good teachers (Rockoff, et al. 2009). Teacher quality has been shown to be the most influential school-side factor in student learning outcomes (Hanushek, et al. 2005). As an indicator of teacher quality, SABER - School Finance uses the percent of teachers who have received the minimum formal teacher training required for teaching at the primary or secondary level. 14

15 6. What proportion of primary school students has access to a library? A school library gives students access to information and learning materials that may not be available in classrooms or their homes, and provides students with enrichment opportunities. The composition of library materials can be both physical and digital depending on the school setting. Libraries may also provide access to textbooks, a crucial tool for student learning, which have been shown to have positive and significant impact on test scores, in some cases even if students were sharing books (Mingat 2003; Verspoor 2003; Lockheed & Verspoor 1991; Glewwe, et al. 2000). Some research shows that a school library improves learning outcomes and also encourages parents to send their children to school (Glewwe & Jacoby 1994). SABER - School Finance uses as an indicator the proportion of students that has access to a library, or the share of schools with a library, whichever is available. 7. What proportion of primary school students has access to computers? Information and communication technologies (ICTs) are believed to have the potential to promote learning, but few conclusions can be drawn from scarce evidence to support this claim (Trucano 2005). In schools, computers can be used for skills training and/or for part of curriculum delivery. Using ICTs to deliver the curriculum is expensive relative to other teaching methods, and may not increase student learning if curriculum content is not effectively integrated into computer use (Angrist & Lavy 2002; OECD 2011; Barrera & Linden 2009). However, other findings show that computers, when used correctly, create learning gains in some subjects, particularly mathematics (Banerjee, et al. 2005; Barrow, et al. 2008; Wenglinsky 1998). In any event, the ability to engage with content using computer skills is increasingly important in today s economy, and school may be the first place where students from disadvantaged socio-economic backgrounds or low-income countries are exposed to computers (OECD 2011). Therefore, SABER - School Finance uses as an indicator the proportion of students who has access to computers, or the share of schools with computers for learning purposes if the information is reported at the school level. 8. On average, how many primary school students are there per teacher, across subnational divisions? National averages can mask within country variation of resources that are available to groups of students. Within country differences can vary just as much as differences across countries, especially as more governments decentralize the financing and delivery of education services to subnational levels. The majority of education expenditure is often spent on teacher salaries, so this information can also serve as a proxy for spending per pupil. SABER - School Finance will evaluate the average student-teacher ratios for the 20 percent of subnational divisions with the highest student-teacher ratios as an indicator of how equally resources are distributed within an education system. Policy Lever 1C: Are there basic educational inputs for all secondary school students? 15

16 As in the case of primary education, this lever will assess the extent to which secondary schools and students have adequate coverage for the same inputs: basic infrastructure, potable water, functional hygienic facilities, student-teacher ratio, share of teachers who are qualified, libraries, computers, and student-teacher ratio across subnational divisions. The averages in eight indicators will be used to assess progress in this lever. Policy Lever 1D: Is the government making adequate effort in education? Research indicates that government expenditure and investment in education strongly influence economic growth through an improvement in the quality of labor (Bose, et al. 2007, Schultz 1960). The government is often the largest spender on education, with expenditure justified by externalities of improved productivity, better citizenship, and positive health outcomes. Adequate effort requires governments to commit appropriate amounts to education based on their ability to spend and to do so over time in a way that reflects increases in national wealth. SABER - School Finance uses four indicators to measure government effort in this lever: 1. What is public spending per primary student as a percent of per capita GDP? The government has a role in financing education because public benefits from schooling are higher than private gains, so the private sector will fail to deliver schooling adequately to all. Although financing of education may require public and private contributions, all governments fund and/or provide education services, and commonly provide almost all of funding for primary and secondary levels (OECD 2010). However, countries do not always spend enough on education as a share of income, which may negatively impact future economic growth. In addition, some low-income countries spend low proportions of GDP per capita, which means that spending per pupil is inadequate. This indicator will document government effort, commitment, and ability to generate resources for primary education relative to national income per person, or public spending per student as a share of per capita GDP. 2. What is public spending per secondary student as a percent of per capita GDP? Governments should commit resources to both levels of basic education, including secondary education (lower and upper levels). This indicator will document government effort, commitment, and ability to generate resources for secondary education relative to national income per person, or public spending per student as a share of per capita GDP. 3. Does spending per student respond positively to changes in GDP per capita? In order to sustain learning opportunities, countries should increase their spending (adjusted for the number of students) on education proportionately as their ability to invest increases. Over time, total government spending as a share of GDP has grown in almost all countries (Scully 1989). If most governments increase their level of spending (combined with allocative efficiency) from year to year and enrollments also rise, these increases should be reflected in public expenditure on education as well. There may be a few countries where raising per student spending unconditionally with per 16

17 capita GDP may result in an unreasonably high amount of spending, but in most countries, increasing investment in education is likely necessary to improve the quality of educational services, and thus the population s cognitive skills to drive economic growth and individual well-being. This indicator will measure the elasticity of per pupil spending and GDP per capita using constant values, and evaluate whether per pupil spending responds positively to changes in GDP per capita over a five year period. 4. How much does spending per student change from year to year? Achieving adequate educational outcomes requires incremental and cumulative investments, which demand a reliable supply of resources. Large fluctuations in per pupil funding will hamper the ability of schools to provide a consistent educational experience for all students each year, especially if these changes result in less resources. Spending should not fluctuate beyond a certain point from year to year so that education programs and policies can be sustained over time, unless needs change drastically. Spending levels should not decrease, but purposeful positive variation in education spending can be advantageous, particularly in some developing countries with youth bulges in which mortality has declined but fertility remains high. This indicator will assess the average year-on-year change in spending in real terms over a five year period. Policy Goal 2: Promoting Equity Do school finance systems seek to improve education outcomes for students from disadvantaged backgrounds and reduce outcome gaps among groups of students? SABER - School Finance uses two policy levers to assess the extent to which the public and private investments in education contribute to the goal of providing learning opportunities to all students: (A) Does the government provide more resources to students from disadvantaged backgrounds?; and (B) Do payments for schooling represent a high share of income for low income households? Policy Lever 2A: Does the government provide more resources to students from disadvantaged backgrounds? Equity in school finance means that students with different educational needs should receive different and commensurate levels of resources (Baker & Green 2008). Socio-economic background is often the largest determinant of whether students have difficulties in completing their education, but ethnicity, gender, native language, and urban or rural residence also influence attainment. Special needs due to physical disabilities or learning difficulties also require differentiated funding. Governments at the national and subnational levels (to a degree) have the ability to redistribute resources fairly across these student groups. This lever assesses the extent to which the government commits extra funds to compensate for the greater challenges of educating students with disadvantaged backgrounds or special needs. SABER - School Finance uses seven indicators and sub-indicators in this lever to show the extent to which governments equitably distribute resources: 1. Are there school financing policies that target socio-economically disadvantaged students? 17

18 All students should receive the resources necessary to give them a quality basic education, which may require additional expenditure for some. Inequalities in attainment associated with socioeconomic background are likely to be larger than those due to other influences (Filmer 2008). However, it is possible to compensate for socio-economic differences, and studies show that resources may matter more for children from low-income households than for other children (Baker & Green 2008; Rivkin, et al. 2005). This indicator will evaluate whether school finance systems have policies designed to improve education outcomes for socio-economically disadvantaged students. 1a. What share of total public education spending is differentiated by socio-economic background of students? The magnitude of spending dedicated to an existing policy to promote the achievement of students from disadvantaged socio-economic backgrounds will impact successful implementation. Equity implications of differentiated funding for student groups are commonly assessed by assigning weights to particular disadvantaged student groups, and converting per student spending to spending per weighted student (Downes & Stiefel 2008). When spending per student has been adjusted for weighting (the higher relative costs of educating disadvantaged students), the figure will more accurately reflect the real effect of the expenditure. This indicator will use the amount of differentiated spending on socio-economically disadvantaged students as a share of total public spending to assess the implicit weight assigned to these students. 2. Are there school financing policies that target other disadvantaged groups of students? Students can also be at a disadvantage depending on their ethnicity, gender, native language, or urban/rural location. Students who speak a different language at home may have more difficulty learning the material, which could result in lower mastery of content. In this case, resources may be necessary for programs that improve language skills. Location can also be a factor, as costs of inputs may vary: for example, teachers may be more expensive in rural areas, but the cost of school property may be higher in urban areas. Groups that are socially excluded due to ethnic background often have lower attainment rates (Patrinos & Psacharopoulos 1992), which may be a result of historical disadvantage or living in isolated areas. Great progress has been made to close gender gaps in enrollment, especially at the primary level, but gender still affects attainment, with girls and boys at a disadvantage in different parts of the world (Filmer 2008; World Bank 2011; Brown & Park 2002). Although socio-economic background is the most influential factor in determining learning outcomes, these other disadvantages also matter, and the interaction of two or more disadvantages can multiply any negative effect. This indicator will examine whether there are education policies that provide additional resources to identifiably distinct student needs. 2a. What share of total public education spending is differentiated by other disadvantaged groups of students? The amount of differentiated spending on other students groups in relation to total spending matters, not just whether policies are in place to provide funding. This indicator will evaluate the 18