Decomposing Inequality in Compulsory Education Finance in China: 1998-2008

By Wang, Wen | Public Finance and Management, October 1, 2014 | Go to article overview

Decomposing Inequality in Compulsory Education Finance in China: 1998-2008


Wang, Wen, Public Finance and Management


ABSTRACT

In recent decades, the inequality in compulsory education finance in China has remained a widespread and serious problem. Based on a provincial-level dataset in the period of 1998-2008, this study analyzed the disparities of school funding in China, attempting to explore the important factors that may have contributed to the inequality. Using the methods of factor decomposition and regression-based decomposition of Gini coefficient, it showed that the inequality of school funding had not been reduced after recent governmental reforms. The level of economic development appeared to be highly associated with the inequality of expenditures for compulsory education. The empirical results of this analysis suggest that a sound system of intergovernmental fiscal transfers with built-in equalization features may need to be developed in China.

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

Though the finance schemes vary, most governments in the world provide basic education to their citizens. Equal opportunities to develop their talents are often considered by many as people's fundamental human rights (Faure et al., 1972; Lin, 2009). Since education is one of the major channels for individ- uals to move up the social ladder in China, disparities in access and quality of education will inevitably result in inequality in people's income and social sta- tus, and the inequality may become transmittable across generations (Lin, 2009). Though education expenditures do not provide an ideal measure of the underlying resources used by local governments for education or the outcomes of the process (Johnston and Duncombe, 1998), it remains a fundamental benchmark in evaluating the equality of public education system and continues to be an important concern of the public and the education community (Moser and Rubenstein, 2002). In recent decades, the Chinese government has imple- mented a series of reforms on its finance system for the nine-year compulsory education. Nevertheless, the school funding inequality across different regions has remained a widespread and serious problem even after several rounds of reforms, which has attracted a lot of public and academic attention in recent years.

Since the 1985 education finance reform, China has established a highly decentralized compulsory education finance system, with education funding relying more and more on revenue resources provided by local governments (Wang and Zhao, 2012).1 Later, two major governmental reforms in the coun- try had an important impact on the compulsory education finance system. The first was the reform of the tax sharing system after 1994, which reinforced the central government's financial resources, leaving local authorities with insuf- ficient fiscal capacity for funding compulsory education, especially in rural areas. The second was the implementation of rural taxation reforms since 2000 that led to the establishment of a new mechanism for financing compulsory education (Ding, 2008; Zhou and Liu, 2008) with the central and provincial governments playing a much more important role than before.

Employing multiple methods, including factor decomposition and regres- sion-based decomposition of Gini coefficient, this analysis intends to answer three research questions: First, what was the status of inequality in compulsory education finance after recent reforms in China? Second, how did each reve- nue source contribute to the inequality in total school revenues? Third, what major factors were associated with the inequality of spending for compulsory education in China? The empirical results of the analysis will provide new in- sights to identify the major factors that have contributed to the inequality in compulsory education finance and carry important implications for future governmental reforms in China.

The analysis is conducted based on a provincial-level dataset in the period of 1998-2008. Investigating the inequality of funding for compulsory educa- tion at the provincial level can be very informative because the effectiveness of national equalization policies often depends on the behavior and policies of the 31 provincial-level governments, which consist of 22 provinces, 5 Minori- ty Autonomous Regions, and 4 Municipalities. …

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