Improving the Quality of Public spending: The case of Education

Taxes and transfers have a powerful potential to redistribute income; but social spending on
human development – in particular, health and education – can play an enormous role in equalising
opportunities for all. With this in mind, this Outlook takes a close look at education spending and
performance in Latin America. What emerges is that the main challenge the region faces is to improve
the quality of education, as measured by student learning and cognitive abilities. At the same time,
quantity must also be improved, as Latin American countries must increase rates of participation
and completion beyond universal primary education.

Public expenditure on education in Latin America is substantial and rising. Spending on education as
a share of total public expenditure has been growing in Latin America; as a share of GDP education
expenditure now stands at around 4 per cent, a level similar to that observed in OECD countries. But
spending per pupil is still five times lower in Latin America, as the school-age population accounts
for between a quarter and a third of the total, compared with less than a fifth in the OECD.

Latin American countries spend proportionally more on primary education than OECD countries, and
less on tertiary and secondary. The gap is particularly evident in secondary education, where Latin
American countries spend on average 13 per cent of GDP per head, while OECD countries spend
over 24 per cent of GDP per head. Partly as a result of this allocation of spending, gross secondary-
school enrolment rates in Latin America average under 77 per cent while the OECD average is over
100 per cent.

To assess quality of education-expenditure outcomes, this Outlook focuses on performance (measured
by the average and distribution of test scores in the OECD Programme for International Student
Assessment [PISA] study) and equity (measured by the degree to which a student’s socio-economic
background determines his or her test scores). On both counts, Latin America’s PISA results give
cause for concern.

PISA test scores in Argentina, Brazil, Chile, Colombia, Mexico and Uruguay – the six Latin American
countries that participated in the study – are poor compared with the OECD. The performance
gap between Latin American pupils and their OECD peers is equivalent to three years’ worth of
schooling, while the gap for other emerging countries in the study is only about half as large. The
good news is that between the 2003 and 2006 PISA rounds scores for Latin American countries
generally improved.

The right policies can help. Economies such as Lithuania and Macao-China spend similar amounts
per pupil to Latin America yet do better on both performance and equity. In the OECD, school and
educational policies such as the time students spend in regular lessons, better accountability and
merit-based admission policies could have a powerful effect on student learning. The PISA study
furthermore shows that there is not necessarily a trade-off between performance and equity. Policy
makers in Latin American countries can benefit from studies such as PISA, as they grapple with the
political economy of educational reform.

Education spending is but one example of how fiscal policy can foster development, not just economic
growth, in Latin America. The challenge is to channel public spending towards policies that encourage
demonstrated best practice and secure the social support needed to leverage the state’s own actions. Certainly there is a need for more expenditure on the key areas of physical and human capital
formation, but the real priority for the region is to improve the quality of that expenditure by making
it more efficient and better targeted.

 The PISA study also shows that there is no necessary trade-off between performance and equity
– but there is a precondition: schools must mirror society at large. Where a system’s schools are
inclusive in the sense that the distribution of their students’ backgrounds resembles the socio-
economic distribution of families nationwide, they achieve more on both dimensions.