Indicator C2. What proportion of national wealth is spent on educational institutions?

The share of national wealth devoted to educational institutions is substantial in all OECD and partner countries. In 2017, OECD countries spent on average 4.9% of their GDP on educational institutions from primary to tertiary levels (Table C2.1).

Expenditure on primary to tertiary educational institutions relative to GDP varies between 6% or more in Australia, Chile, Israel, New Zealand, Norway, the United Kingdom and the United States, to 3-4% in the Czech Republic, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, the Russian Federation and the Slovak Republic (Figure C2.1 and Table C2.1). Many factors influence the relative position of countries on this measure including the relative number of students enrolled, the duration of studies and the effective allocation of funds. At the tertiary level, spending may be influenced by the criteria for accessing higher levels of education, the number of students enrolled across sectors and fields of study as well as the scale of investment in research activities.

In all OECD and partner countries with available data, the share of national resources devoted to educational institutions in non-tertiary education (primary, secondary and post-secondary non-tertiary levels) is much larger than the share devoted to tertiary education (Table C2.1 and Figure C2.1). On average across OECD countries, 71% of expenditure on educational institutions, or 3.5% of GDP, is directed to non-tertiary levels, due to the high enrolment rates at these levels. The share of resources devoted to educational institutions at non-tertiary levels is at 4.5% or more of GDP in Colombia, Iceland, Israel, New Zealand and Norway while it accounts for 2.4% of GDP in Lithuania and the Russian Federation (Table C2.1).

On average across OECD countries, expenditure on educational institutions amounts to 1.5% of GDP at the primary level and 1% at lower secondary level. However, the share of expenditure on educational institutions is strongly influenced by the demographic composition of the country, as well as the duration of each level of education. Countries with relatively low fertility rates are more likely to spend a smaller share of their wealth on primary and lower secondary education. Indeed, the countries where investment in primary education is 1% of GDP or lower also tend to be those with low birth rates (e.g. Austria, the Czech Republic, Germany, Hungary, Italy, Lithuania, and the Slovak Republic; Table C2.1). At upper secondary level, expenditure on educational institutions accounts for 0.5% of GDP in vocational programmes and 0.6% of GDP in general programmes on average across OECD countries. However, these figures vary widely between countries. Around one-third of countries with available data spend more on vocational programmes than on general programmes, with the largest differences found in the Czech Republic, Finland and the Netherlands (0.5 percentage points) (Table C2.1).

Tertiary education accounts for 1.4% of GDP on average. At this level, the various pathways and programmes available to students, the duration of programmes, the organisation of teaching, and research and development (R&D) activity all influence the level of expenditure. In 2017, Australia, Canada, Chile, Norway, the United Kingdom and the United States were the countries that spent the largest share of GDP on tertiary educational institutions (2-3%). Unsurprisingly, these countries also have some of the highest levels of expenditure from private sources of educational funding after public-to-private transfers have been accounted for (1.1-1.7% of GDP) (Table C2.2 and Figure C2.2).

R&D spending in tertiary educational institutions can represent a significant share of total spending at this level and is a function of how the structure for publicly funded research is organised as well as the infrastructure and facilities available. Expenditure levels tend to be higher in Australia, Finland, the Netherlands, Norway, Sweden and other OECD countries where most publicly funded R&D is performed by tertiary educational institutions than in countries where R&D is mostly performed in other institutions. If R&D activities are excluded, expenditure on tertiary educational institutions as a share of GDP decreases by 0.4 percentage points on average across OECD countries, although the difference is at least 0.7 percentage points in Denmark, Finland, Norway and Sweden (Table C2.1).

Public spending remains the main source of educational funding in OECD countries. On average, public expenditure on educational institutions from primary to tertiary educational levels (after transfers to the private sector) accounts for 4.1% of GDP. However, large differences are observed across countries with available data. In the Czech Republic, Greece, Ireland, Japan, Lithuania, Luxembourg, the Slovak Republic and the Russian Federation, public investment represents around 2.8-3.2% of GDP, while Belgium, Brazil, Costa Rica, Denmark, Finland, Iceland, Israel, Norway and Sweden devote around 5.0-6.4% of their GDP to direct public expenditure on educational institutions (Table C2.2).

Public transfers to households (such as scholarships and loans to students for tuition and other fees) and subsidies to other private entities for education (e.g. to firms or labour organisations operating apprenticeship programmes) comprise 0.2% of GDP on average across OECD countries from primary to tertiary level. They account for 0.3% of GDP or more in Australia, Chile, Korea and New Zealand and reach 0.6% in the United Kingdom, mainly driven by public transfers at tertiary level (Table C2.2).

With public budgets tightening, many educational systems are turning increasingly towards the private sector for additional investment, particularly at tertiary level. After transfers, private sector expenditure on primary to tertiary educational institutions accounts for 0.8% of GDP on average. Countries nevertheless differ considerably in the contribution of private expenditure on educational institutions, ranging from 0.1% of GDP or less in Denmark, Finland and Luxembourg, to 2% or more in Australia, Chile, the United Kingdom and the United States (Figure C2.2).

At non-tertiary levels of education, private investment is low and accounts for 0.3% of GDP on average across OECD countries after public-to-private transfers. However, it amounts to at least 0.7% of GDP in Australia, Colombia, New Zealand, Turkey and the United Kingdom, the countries with the largest relative shares of private funding of non-tertiary education. At the tertiary level, private investment plays a more significant role, accounting for 0.4% of GDP after transfers on average. In some countries, private sources contribute a larger share of the GDP even before public transfers to households are taken into account. Countries such as Australia, Chile, Korea, New Zealand and the United Kingdom devote 0.6% of GDP or more in private spending before transfers. After public transfers are taken into account, private investment represents more than 1% of the GDP in these countries. In Chile and the United States, it amounts to 1.7% of GDP, the highest among OECD countries (Table C2.2 and Figure C2.2).

Between 2012 and 2017, OECD countries have increased public expenditure on educational institutions across all levels of education, but at a slower pace than average GDP growth (Table C2.4, available on line, and Figure C2.3). This pattern also holds when private sources are included in the equation. On average, total expenditure from all sources on primary to tertiary educational institutions increased by 6.6% between 2012 and 2017, but since GDP grew at a higher pace (13.1%) total expenditure as a percentage of GDP fell by 5.2% (Table C2.3). More than two-thirds of OECD and partner countries with available data experienced a reduction in the total expenditure on educational institutions as a share of GDP. Colombia, the Czech Republic, Ireland, Lithuania, Luxembourg, Mexico and Slovenia were among the countries with the largest negative adjustments; all them saw increases in GDP of over 10% over that period combined with reductions in total expenditure on educational institutions. In contrast, Norway was the major exception, with an increase of 17% in total expenditure on educational institutions outstripping its significant increase in GDP (Table C2.3)

Spending on the various levels of education evolved similarly between 2012 and 2017. Expenditure on educational institutions at the non-tertiary levels decreased by 3.9% relative to GDP. However, this average masks significant changes in some countries. In Sweden and the Russian Federation, for example, expenditure on non-tertiary education as a share of GDP increased by at least 6% over this period. Over the same period, Lithuania, Luxembourg, Mexico, Portugal and Slovenia experienced some of the largest decreases in the share of expenditure on these educational levels (over 11%), mainly explained by a decrease in public expenditure (Table C2.3).

At the tertiary level, about one-fifth of countries with available data increased their investment in tertiary education relative to GDP between 2012 and 2017, even though their spending at non-tertiary levels declined or remained fairly stable. Clear examples of this trend are Chile, Luxembourg and the United Kingdom, which increased the share of GDP invested in tertiary educational institutions by over 10% but reduced the share invested in non-tertiary educational institutions by at least 2% during this period (Table C2.3).

Expenditure on educational institutions refers to public, private and international expenditure on entities that provide instructional services to individuals or education-related services to individuals and other educational institutions (schools, universities and other public and private institutions).

Initial public spending includes both direct public expenditure on educational institutions and transfers to the private sector and excludes transfers from the international sector. Initial private spending includes tuition fees and other student or household payments to educational institutions, minus the portion of such payments offset by public subsidies. Initial international spending includes both direct international expenditure for educational institutions (for example a research grant from a foreign corporation to a public university) and international transfers to governments.

Final public spending includes direct public purchases of educational resources and payments to educational institutions. Final private spending includes all direct expenditure on educational institutions (tuition fees and other private payments to educational institutions), whether partially covered by public subsidies or not. Private spending also includes expenditure by private companies on the work-based element of school- and work-based training of apprentices and students. Final international spending includes direct international payments to educational institutions such as research grants or other funds from international sources paid directly to educational institutions.

Public subsidies to households and other private entities for educational institutions include public and international transfers, such as scholarships and other financial aid to students, plus certain subsidies to other private entities. Therefore, they are composed of government transfers and certain other payments to households, insofar as these translate into payments to educational institutions for educational services (for example, fellowships, financial aid or student loans for tuition). They also include government transfers and some other payments (mainly subsidies) to other private entities, including subsidies to firms or labour organisations that operate apprenticeship programmes and interest subsidies to private financial institutions that provide student loans, etc.

Direct public expenditure on educational institutions can take the form of either purchases by the government agency itself of educational resources to be used by educational institutions or payments by the government agency to educational institutions that have responsibility for purchasing educational resources.

Direct private (from households and other private entities) expenditure on educational institutions includes tuition fees and other private payments to educational institutions, whether partially covered by public subsidies or not.

Expenditure on educational institutions as a percentage of GDP at a particular level of education is calculated by dividing total expenditure on educational institutions at that level by GDP. Expenditure and GDP values in national currency are converted into equivalent USD by dividing the national currency figure by the purchasing power parity (PPP) index for GDP. The PPP conversion factor is used because the market exchange rate is affected by many factors (interest rates, trade policies, expectations of economic growth, etc.) that have little to do with current relative domestic purchasing power in different OECD countries (see Annex 2 for further details).

All entities that provide funds for education are classified as either governmental (public) sources, non-governmental (private) sources or international sources, such as international agencies and other foreign sources. The figures presented here group together public and international expenditure for display purposes. As the share of international expenditure is relatively small compared to other sources, its integration into public sources does not affect the analysis of the share of public spending.

Not all spending on instructional goods and services occurs within educational institutions. For example, families may purchase commercial textbooks and materials or seek private tutoring for their children outside educational institutions. At the tertiary level, students’ living expenses and foregone earnings can also account for a significant proportion of the costs of education. All expenditure outside educational institutions, even if publicly subsidised, is excluded from this indicator. Public subsidies for educational expenditure outside institutions are discussed in Indicators C4 and C5.

A portion of the budgets of educational institutions is related to ancillary services offered to students, including student welfare services (student meals, housing and transport). Part of the cost of these services is covered by fees collected from students and is included in the indicator.

Expenditure on educational institutions is calculated on a cash-accounting basis and, as such, represents a snapshot of expenditure in the reference year. Many countries operate a loan payment/repayment system at the tertiary level. While public loan payments are taken into account, loan repayments from private individuals are not, and so the private contribution to education costs may be under-represented.

For more information please see the OECD Handbook for Internationally Comparative Education Statistics 2018 (OECD, 2018[1]) and Annex 3 for country-specific notes (https://doi.org/10.1787/69096873-en).

Data refer to the financial year 2017 (unless otherwise specified) and are based on the UNESCO, OECD and Eurostat (UOE) data collection on education statistics administered by the OECD in 2019 (for details see Annex 3 at https://doi.org/10.1787/69096873-en). Data from Argentina, the People’s Republic of China, India, Indonesia, Saudi Arabia and South Africa are from the UNESCO Institute of Statistics (UIS).

The data on expenditure for 2005 and 2012 to 2017 were updated based on a survey in 2019-20, and expenditure figures for 2005 to 2017 were adjusted to the methods and definitions used in the current UOE data collection.

Reference

[1] OECD (2018), OECD Handbook for Internationally Comparative Education Statistics 2018, OECD Publishing, Paris, https://doi.org/10.1787/9789264304444-en (accessed on 16 April 2020).

Table C2.1 Total expenditure on educational institutions as a percentage of GDP (2017)

Table C2.2 Total expenditure on educational institutions as a percentage of GDP, by source of funds (2017)

Table C2.3 Index of change in total expenditure on educational institutions as a percentage of GDP (2005, 2012 and 2017)

WEB Table C2.4 Index of change in public expenditure on educational institutions as a percentage of GDP (2005, 2012 and 2017)

StatLink: https://doi.org/10.1787/888934164446

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