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International Handbook on the Economics of Education

Edited by Geraint Johnes and Jill Johnes

This major Handbook comprehensively surveys the rapidly growing field of the economics of education. It is unique in that it comprises original contributions on an exceptional range of topics from a review of human capital, signalling and screening models, to consideration of issues such as educational externalities and economic growth, funding models, determinants of educational success, the educational production function, educational standards and efficiency measurement. Labour market issues such as the market for teachers and the transition of students from school to work are also explored.
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Chapter 7: School Finance

David Mitch


7 School finance David Mitch School finance deals with the issues that have arisen as societies throughout the world have developed ways of funding schools. These issues are shaped by the fact that provision of schooling has generally not been left solely to market responses to profit incentives. Intervention in the market for schooling has been justified on the grounds of externalities attributable to education, on the grounds of capital market imperfections and on the grounds of the impact of education on equality of opportunity. Consequently a variety of state, religious and other non-profit institutions have developed throughout the world to fund, provide and manage schools. Thus, in 1999, for some ten developing countries, the public share of expenditure on education at all levels came to 72 per cent and for OECD countries in the same year averaged 88 per cent. In 2000, for both OECD and these same ten developing countries, over three-quarters of students at the primary and secondary levels were enrolled in publicly managed schools (OECD, 2002). The imperative to develop means of funding schools becomes of further moment when one realizes that current levels of educational funding are quite sizeable relative to national income throughout the world. For OECD and developing countries alike, expenditure on primary and secondary schooling in recent years has averaged 3 to 4 per cent of GDP. It should be noted that such high levels are a phenomenon of the 20th century. In the 19th century, expenditure on education...

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