Estimation of Drivers of Public Education Expenditure: Baumol’s Effect Revisited

Author/Editor:

Manabu Nose

Publication Date:

July 28, 2015

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper analyzes drivers of rising per-pupil public education spending, including Baumol’s “cost disease” effect. Higher wages paid to teachers contributed significantly to the increase in per-pupil spending over the past decades. Empirical analyses using a large dataset of advanced and developing economies show that the contribution of Baumol’s effect was much smaller than impled by theory. Rather, the spending inccrease reflects rising wage premiums paid for teachers in excess of market wages, especially in middle-income countries. The strong wage premium effect suggests that institutional characteristics that govern teachers’ wage setting are key determinants of education expenditure.

Series:

Working Paper No. 2015/178

Subject:

Capital spending Education Education spending Expenditure Labor Wages

English

Publication Date:

July 28, 2015

ISBN/ISSN:

9781513517384/1018-5941

Stock No:

WPIEA2015178

Pages:

36

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