Education finance equalization, spending, teacher quality and student outcomes: The case of Brazils

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Education finance equalization, spending, teacher
quality and student outcomes The case of
Brazils FUNDEF

• Nora Gordon Emiliana Vegas
• UC San Diego The World Bank

January 14, 2005
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Structure of presentation

• Motivation
• Background on Brazil
• Key features of FUNDEF
• Related literature this paper
• Data and descriptive statistics
• Findings
• Conclusions policy implications

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Motivation

• FUNDEF an education finance reform implemented
  in 1998
• Can provide useful evidence on the impact of
  education finance equalization strategies on
  access, quality, and equity of education

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Background on Brazil

• mid-1990s Brazil was characterized by enormous
  inequality across and within states in terms of
  education finance, access, and quality
• highly decentralized structure, with state and
  municipal education systems (26 states DF,
  about 5,000 municipalities)
• basic education (Ensino Fundamental) is comprised
  of 2 levels
• EF1 grades 1-4
• EF2 grades 5-8

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Education finance in Brazil before 1998

• By law, 25 percent of all state- and
  municipal-level taxes transfers were mandated
  to be spent on education
• States municipalities were (anecdotally) quite
  creative in their definition of education
  spending
• This led to enormous inequity in resources
  available for education within and across states
  (Soares 1998)

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Regional disparities in education finance and
access in the 1990s
Sources INEP and STN
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FUNDEF Key features

• Main feature is creation of a state fund to which
  state municipal governments contribute 15
  percent of specific taxes transfers
• These contributions are then redistributed to the
  state municipal governments on the basis of
  enrollment
• at least 60 of FUNDEF revenues must be
  allocated to teacher salaries
• The federal government supplements the per
  student allocation in states where FUNDEF
  revenues per student are below a yearly
  established spending floor
• The law requires state municipal governments to
  allocate 10 of FUNDEF-tapped and 25 of
  non-FUNDEF taxes transfers to education

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Previous research on FUNDEF

• Found that the reform
• led to substantial increases in enrollment in
  municipal basic education systems, especially in
  the poorest regions (World Bank 2002)
• associated with positive effects on repetition,
  dropout and age-by-grade distortion (World Bank
  2002, Abrahão de Castro 1998)

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Previous research on education finance
equalization reforms

• In the U.S., found
• mixed evidence about the merits on reducing
  inequality in student achievement (Card Payne
  2002, Clark 2003)
• important to assess the extent to which
  previously allocated revenues for education are
  redirected to other areas (Hoxby 2001, Gordon
  2004)

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This paper

• explores further how FUNDEF affected education
  expenditures by municipal state governments,
  including the extent of crowd-out
• examines the effect of the reform on state-level
  enrollment
• analyzes how state municipal governments
  allocated additional resources on inputs -
  teacher credentials and class size - and how
  these translate into student outcomes
• evaluates the extent to which the reduction in
  spending inequality among states led to a
  decrease in inequality in student achievement

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Data

• Education indicators from INEPs annual school
  census for 1996-2002
• student enrollment, number of teachers, teachers
  educational attainment, age-by-grade distortion
• Annual financial data from STN (Treasury) for
  1996-2002
• State municipal taxes transfers, used to
  calculate FUNDEF (after 1998) and non-FUNDEF
  resources for education
• Expenditure data, used to calculate education
  expenditures
• Student achievement data (SAEB)
• Math and language standardized tests administered
  to 4th graders in 2 years prior and 2 years post
  FUNDEF 1995, 1997, 1999, and 2001
• stratified sample of students, representative at
  the state level for state, municipal private
  schools

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Evolution of Enrollment in EF1, by region,
1996-2002
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Evolution of Enrollment in EF2, by region,
1996-2002
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Enrollment changes in 1997-2002
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Primary Net Enrollment Rates by Region, 1994-2000
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Mean pupilteacher ratios
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Share of teachers with more than primary education
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Mean age-by-grade distortion
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Regional averages of state per pupil spending
(constant R)
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Regional averages of annual state FUNDEF per
pupil allocations
(current R)
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Means and standard deviations of SAEB 4th grade
math scores
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A short note on methodology

• We use regular OLS, instrumental variable and
  reduced-form approaches to identify the effect of
  FUNDEF on the variables of interest
• Our instrumental variable is the amount of
  education spending mandated by the reform,
  calculated using FUNDEFs formula

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Findings

• To what extent did FUNDEF translate into
  increased education expenditures by municipal
  state governments, including the extent of
  crowd-out?
• To what extent did FUNDEF lead to increases in
  state-level enrollment?
• How did state municipal governments allocate
  additional FUNDEF resources on inputs - teacher
  credentials and class size - and how did these
  translate into student outcomes?
• To what extent did the reduction in spending
  inequality among states led to a decrease in
  inequality in student achievement?

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1. To what extent did FUNDEF resources translate
into education spending?
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2. Effect of spending on state-level enrollment
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3. Effect of spending on class size
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3. Effect of spending on teacher qualifications
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3. Effect of spending on age-by-grade distortion
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3. Effect of inputs on age-by-grade distortion
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4. Effect of state-level mean per pupil spending
on math achievement
(quantile regression results)
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4. Effect of state-level inequality in per pupil
spending on math achievement
(quantile regression results)
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Conclusions

• Revenue flows from FUNDEF fully translated into
  education spending
• FUNDEF led to increases in enrollment in those
  states most affected by the reform
• Additional resources from FUNDEF were used to
  reduce class size
• Legislation mandating that teachers have at least
  secondary education was successful

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Conclusions (cont.)

• Reductions in class size and in the share of
  untrained teachers are associated with slight
  decreases in age-by-grade distortion
• Although changes in mean spending are not
  associated with higher student achievement,
  reductions in spending inequality may raise the
  achievement of students in the lower tail of the
  distribution