Indicator C4. What is the total public spending on education?

Overall level of public resources invested in education

The share of total public expenditure devoted to education varies across countries. In 2018, total public expenditure on primary to tertiary education as a percentage of total government expenditure for all services averaged 11% in OECD countries. However, this share varies across OECD and partner countries, ranging from around 7% in Greece to around 17% in Chile (Table C4.1 and Figure C4.1).

Overall, significant government funding was devoted to non-tertiary levels of education in 2018. In most countries, and on average across OECD countries, roughly three-quarters of total public expenditure on primary to tertiary education (about 8% of total government expenditure) was devoted to non-tertiary education (Table C4.1). This is largely explained by the near-universal enrolment rates at non-tertiary levels of education (see Indicator B1), the demographic structure of the population and the fact that in OECD countries, on average, the funding structure for tertiary education depends more on private funding sources than it does for non-tertiary levels (primary, secondary and post-secondary non-tertiary levels).

In 2018, the share of total public expenditure devoted to tertiary education varied widely among countries. On average across OECD countries, total public expenditure on tertiary education amounted to 27% of total public expenditure on primary to tertiary education. Across OECD and partner countries, the share ranges from below 15% in Luxembourg to over 35% in Austria, Denmark and Turkey where expenditure on research and development (R&D) represents a significant share (Table C4.1).

Total public expenditure on education includes direct expenditure on institutions (such as the operating costs of public schools), transfers to the non-educational private sector that are attributable to educational institutions and public subsidies to households for living costs that are not spent in educational institutions. Public transfers and payments to the non-educational private sector for primary to tertiary education (such as public student loans, grants, scholarships and subsidies to private student loans) represent a small share of total government expenditure in OECD and partner countries, but significant differences are observed across countries (Figure C4.1). In 2018, on average across OECD countries, this public expenditure represented less than 1% of total government expenditure and 8% of public expenditure on education, with the remaining 92% corresponding to direct public expenditure on education. However, the percentage varies by country: public transfers and payments to the non-educational private sector represent 2% or more of total government expenditure in Denmark, the Netherlands and the United Kingdom and less than 0.3% in Argentina, the Czech Republic, Estonia, Greece, Hungary, Luxembourg and the Russian Federation (Figure C4.1).

When public expenditure on education is considered as a proportion of total government expenditure, the relative sizes of public budgets must be taken into account. Indeed, the share of total government expenditure as a proportion of gross domestic product (GDP) varies greatly among countries (Table C4.1 – web columns). In 2018, about one-in-ten countries with available data reported that total government expenditure on all services accounted for more than 50% of GDP. A high share of total government expenditure devoted to public expenditure on education does not necessarily translate into a high share relative to a country’s GDP. For example, Korea allocates 13% of its total government expenditure on primary to tertiary education (more than the OECD average of 11%), but total public expenditure on education as a share of GDP is relatively low (4.1% compared to the OECD average of 4.4%). This can be explained by Korea’s relatively low total government expenditure as a share of GDP (31%) (Table C4.1 – web columns).

The economic crisis associated with the COVID-19 pandemic has affected the availability of public funding for education in OECD and partner countries. While the longer term impact on education funding is still uncertain, some countries have implemented immediate financial measures to support students and education systems to cope with the disruptions and economic impact of school and university closures (OECD, 2021[1])

Trends in public expenditure on education as a percentage of total government expenditure, 2012-18

Between 2012 and 2018, the proportion of government expenditure devoted to public expenditure on primary to tertiary education slightly decreased across OECD countries (1%). This was the result of an increase of 10% on the total public spending on primary to tertiary education compared with a higher increase in the total government expenditure over the same period (12%) (Table C4.3).

Despite this decrease at aggregate level, in half of the OECD and partner countries with available data for both years, this share increased between 2012 and 2018, with the Czech Republic and Greece showing the greatest increase (over 12%). In the remaining countries, the increase in public expenditure on education was smaller than the increase in government spending overall. The most notable examples are Costa Rica, Latvia and Turkey, where the relative increase in total government expenditure was at least 10 percentage points higher than the increase in public expenditure on education (Table C4.3).

On average across OECD countries, a similar pattern is observed when looking at dissaggregated education levels. However, significant differences are observed when looking at the evolution of public expenditure across countries. Between 2012 and 2018, the increase in total public expenditure on education was larger than the increase in total government expenditure in around one-fourth of OECD and partner countries with available data. Decisions on public spending varied across education levels and countries. Among countries where public expenditure on education increased more than government expenditure between 2012 and 2018, Hungary displayed the highest growth in both non-tertiary and tertiary levels of education (around or above 26%). In contrast, other countries prioritised public funding growth to specific education levels. For example, public spending on tertiary education increased more than total government spending over this period in Brazil, Chile, Estonia, Switzerland and the United Kingdom whereas public spending at pre-tertiary level grew at a lower rate and even declined in Brazil. In contrast, growth in public spending on pre-tertiary education was higher than total government expenditure in Iceland, Israel, the Russian Federation, the Slovak Rebublic, Slovenia, Sweden and the United States, while public investment at tertiary level increased at a lower rate than government spending or declined slightly over this period.

Sources of public funding invested in education

The division of responsibility for education funding between levels of government (central, regional and local) is an important factor in education policy. Indeed, important decisions regarding education funding are taken at both the initial level of government, where the funds originate, and at the final level of government, where they are ultimately spent. At the initial level, decisions are taken about how much funding should be allocated and any restrictions on how that money can be spent. At the final level of government, additional restrictions may be attached to the funds, or this level of government may even pay directly for educational resources (e.g. teachers’ salaries). However, independently of the division of the funding responsibilities between levels of government, public expenditure might be allocated differently across education levels (Box C4.1).

Education funding may be centralised or decentralisedwith funds transferred between levels of government. Complete centralisation can cause delays in decision making. Decisions that are far removed from those affected can also fail to address changes in local needs and desired practices. Under complete decentralisation, however, units of government may differ in the level of educational resources they spend on students, either due to differences in priorities related to education or to differences in their ability to raise funding for education. Wide variations in education standards and resources can also lead to unequal educational opportunities and insufficient attention being paid to long-term national requirements.

In recent years, many schools have become more autonomous and decentralised, as well as more accountable to students, parents and the wider public for their outcomes. The results of the OECD Programme for International Student Assessment (PISA) suggest that when autonomy and accountability are intelligently combined, they tend to be associated with better student performance (OECD, 2016[3]).

Box C4.1. Allocation of public expenditure on education by educational level

National governments make key decisions in the proportion of financial resources devoted to education, which impacts economic and social development. Economic theory predicts that increasing public expenditure on education will lead to an increase in the economic growth rate due to higher levels of schooling and a better quality workforce. In terms of equity, public spending also has an effect on individuals’ future income (see Indicator A5) and can reduce poverty rates.

Policy makers have to balance the importance of improving the quality of educational services with the desirability of expanding access to educational opportunities. The public resources devoted to education are generally allocated based on the funding formula approach (see Indicator D6 and OECD (2017[4])), and the number of students is one of the factors that influence the resources devoted to education. Indeed, the funding formula approach relies on a mathematical formula taking into account four main groups of variables: 1) student numbers and grade levels; 2) needs; 3) curriculum or educational programmes; and 4) school characteristics. Therefore, the proportion of students participating in different levels of education is an important element for policy makers. Variations in these proportions might reflect differences in the demand for these education services and therefore the need to adjust public funds across education levels.

Relative measures such as the location quotient (LQ) can help quantify the concentration levels of students across education levels in comparison to the proportion of public financial resources devoted to each. This measure can help policy makers assess whether sufficient resources are allocated to each level of education based on the share of students participating in them. The location quotient is equal to 1 when the percentage of students in a particular education level is equal to the proportion of resources devoted to it. Indexes over 1 indicate that the proportion of resources devoted to that level of education are over-represented; indexes under 1 indicate that the proportion of resources devoted to it are under-represented.

This analysis clearly shows that some OECD countries emphasise broad access to tertiary education, while others invest in near-universal education for children. On average, primary education seems to be slightly underfunded compared to the share of students enrolled at this level. In 2018, the LQ was 0.92 at this level, significantly lower than at higher education levels. Indeed, the LQ reaches 1.07 at tertiary level on average across all OECD countries.

The way resources are allocated across the different levels of education varies widely across countries. While countries such as Australia, Greece, Korea, Latvia and Lithuania devote a larger share of public funds to education compared to the proportion of students in pre-tertiary levels, the opposite is observed in the majority of other countries where a disproportionate share of resources (after excluding research and development expenditure) are devoted to tertiary education levels. This is particularly striking in countries such as Denmark where generous student grants are provided to tertiary students, but also in Mexico, New Zealand, Turkey and the United Kingdom, where the share of public expenditure at tertiary level is at least 1.4 times higher than the share of national students enrolled. The demand for high-quality education must also be balanced against other demands on public expenditure and the overall burden of taxation.

Figure C4.3. Relative distribution of public expenditure on education and full-time equivalent students, by education level (2018)

Initial sources of funds, by level of education, location quotient (LQ, parity = 1)

Note: Public expenditure on research and development has been excluded from the public expenditure figures presented here. The relative share is computed using the location quotient, which is defined as a ratio of ratios. The location quotient is a simple descriptive statistic measuring the extent to which government expenditure on education in a given ISCED level is distributed in accordance with the distribution of the full-time equivalent students in a country. The formula is LQ= ((Xi/∑Xi)/(Ni/∑Ni)), where LQ is the location quotient, Xi is the public expenditure on education in an ISCED level i, ∑Xi is the total public expenditure on education in all ISCED levels combined, Ni is the total of students in an ISCED level i, and ∑Ni is the total number of students in all ISCED combined. An LQ=1 indicates that there is the same proportion of public expenditure on education as total full-time equivalent students in an ISCED level i. If LQ<1, the ISCED level has a lower distribution of public expenditure on education in comparison to the full-time equivalent students. If LQ>1, the ISCED level has a higher distribution of public expenditure on education than it does in terms of students.

Countries are ranked in descending order of the LQ index in primary education.

Source: OECD/UIS/Eurostat (2021), based on data available on OECD.stat. See Source section for more information and Annex 3 for notes (https://www.oecd.org/education/education-at-a-glance/EAG2021_Annex3_ChapterC.pdf).

 StatLink https://stat.link/tg0az3

The levels of government responsible for funding education differ depending on the level of education. Typically, public funding is more centralised at the tertiary level than at lower levels of education. In 2018, on average across OECD countries, 59% of the public funds for non-tertiary education came from the central government before transfers to the various levels of government, compared to 88% of the funds for tertiary education (Table C4.2).

The division of responsibility for public funding in non-tertiary levels of education varies greatly among countries (Table C4.2 and Figure C4.4):

• On average, central and regional governments are the main initial and final sources of funds in non-tertiary education. However, the central government is the only main initial source of funds and the only final purchaser of educational services in Costa Rica, Ireland and New Zealand. In countries such as Chile, Colombia, France, Greece, Hungary, Israel, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, Turkey and the United Kingdom, the central government is the source of the majority of initial funds and the main final purchaser of educational goods and services.

• In Austria, Estonia, Korea, Latvia, Lithuania, Mexico, Poland and the Slovak Republic, the central government is the main initial source of funds, but regional and local authorities are the main final purchasers of educational services in non-tertiary education.

• Regional governments are both the main initial source and the main final spender of education funds in Australia, Belgium, the Czech Republic, Germany, the Russian Federation, Spain and Switzerland. In Canada and Japan, regional governments are the predominant source of initial funds, but local authorities are the main final purchasers of educational services.

• In Denmark, Finland, Iceland, Norway and Sweden, local authorities are both the main initial source of funds and the main final purchasers of educational services. In the United States, both regional and local governments are the main initial sources of funds, but local governments are the main final purchasers.

On average across OECD countries, more funds are transferred from central to regional and local levels of government for non-tertiary education than for tertiary education. This extends the scope for decentralisation at non-tertiary levels of education. On average across OECD countries, the share of public funds for non-tertiary education provided by the central government falls from 59% to 44% after transfers to other levels of government have been accounted for, while the share of local funds rises as a result, from 26% to 42%. There is a great deal of variation in the sources of funds before and after transfers from central to lower levels of government. In Korea, Lithuania, Mexico, Poland and the Slovak Republic, the difference is more than 50 percentage points after transfers to regional and local governments. In Australia, Austria, Chile and Estonia, the difference is between 25 and 40 percentage points. In Canada and the United States, where the regional level is mostly responsible for transferring funds to schools, the share of regional funding falls by 40 percentage points or more after transfers to local levels of government (Table C4.2 and Figure C4.4).

Tertiary education is much more centralised than non-tertiary education, as the proportion of public funds coming from the central government is relatively large, both before and after transfers to lower levels of government (Table C4.2). On average across the OECD, the central government manages 88% of funds before transfers, and this barely changes once intergovernmental transfers are taken into account. In most OECD and partner countries with available data, central government directly provides more than 60% of public funds in tertiary education; in about two-thirds of countries, the central government is the main source of initial funding and there are no or small transfers to regional or local governments. In contrast, countries such as Belgium, Germany, Spain and Switzerland source over 60% of tertiary-level funding from regional governments with little or nothing transferred down to local governments. Local authorities typically do not have an important role in financing tertiary education, representing only 1% of public funds on average, with the exception of the United States where local governments provide 12% of total expenditure to the level.