School Finance in Latin America: A Conceptual Framework and a Review of Policies

Aug 2018
Education spending has significantly increased in Latin America and the Caribbean (LAC) over the last few decades. Most education systems in the region have improved teacher salaries, introduced programs that focus on improving learning in the most disadvantaged schools and systemic accountability. The available data suggests that increased spending combined with economic and social reforms has had an impact on educational outcomes such as improvement on primary and secondary completion rate and moderate but sustained progress in closing the learning gap with more developed countries. However, education systems in LAC still lag significantly behind most developed countries in terms of student performance in international assessments, which illustrate persistent learning gaps. Since education also consumes an increasing share of government expenditures, a constant concern among governments across the region is how to allocate education resources. In this context, school finance strategies offer policy tools to governments to increase efficiency in spending, increase learning, and narrow achievement gaps. Despite the relevance of school funding policies to improve educational quality and equity, there is little systematic analysis that compares education finances across Latin American countries.This conceptual framework aims to bridge this gap by providing a comprehensive description of the mechanisms through which school funding in LAC is governed, distributed, and monitored. This framework includes five key dimensions of school finance systems: (i) sources of funding and the transfers between different levels of government (i.e. national, subnational, local, and schools); (ii) decision-making authority at different levels of government; (iii) information and accountability systems; (iv) resource allocation rules; and (v) allocation of teachers. For each one of these dimensions, we review the relevant literature, collect information through the implementation of an extensive data collection instrument we developed, and provide comparative evidence of the school funding mechanisms in eight school systems from Latin America: The federal government of Argentina, the City of Buenos Aires (Argentina), the federal government of Brazil, the State of Pernambuco (Brazil), the municipality of Rio de Janeiro (Brazil), and the national governments of Chile, Colombia, and Peru.
The main results of the study are presented along the five key dimensions presented above: (i) all systems reviewed have implemented compensatory funding using funds from the national level, however, they seem insufficient to compensate for the inequities in spending across subnational governments; (ii) overall school autonomy is low, with Colombia and Peru exhibiting the lowest levels and Chile the highest; (iii) all systems surveyed have introduced some accountability mechanisms to ensure that budget regulations are followed, including internal and external audits, and transparency laws. Regarding performance-based accountability, all LAC governments reviewed have introduced standardized assessments of students, schools, and/or teachers. However, they vary in the extent to which they publish school-level test results and in the extent to which financial consequences are tied to performance; (iv) most of the reviewed systems in the region have already introduced, or are evaluating the introduction of, objective criteria to increase transparency, efficiency, and equity in the distribution of resources. While there is limited evidence on the optimal design of funding formulas, the experiences of SEP in Chile and FUNDEB in Brazil show that these can be useful tools to increase funding equity; and (v) evidence relating to teacher allocation suggests that efficiency and equity challenges remain. Regarding efficiency, all the systems reviewed rely on face-to-face procedures to allocate hired teachers to schools whereas more advanced systems are using computer-generate