In most jurisdictions, formal schooling does not operate within the market economy. Rather, it is provided, directly or indirectly, by government at negligible direct cost to students and parents. How this service is funded is largely a political decision.
Political responsibility for school systems tends to reside primarily with the level of government also primarily responsible for their funding. Countries with national education systems (e.g., France, Finland) fund schools primarily from national revenues; those with state or provincial systems (e.g., Germany, Australia) with a combination of national and state or provincial revenues; and those with local school districts (the United States, Switzerland) with a combination of national, state or provincial, and local revenues.
Local funding can be popular when it allows more local control of schools. But, the smaller the jurisdiction responsible for funding schools, the more likely there are to be equity concerns. Local jurisdictions with a strong tax base can more easily fund schools than can those with a weak tax base.
If, for example, school revenues come from property taxes, jurisdictions with large, wealthy property owners (e.g., industrial plants, shopping centers) and few students can fund their schools easily even with a weak tax effort (i.e., a low tax rate). By contrast, jurisdictions with high levels of poverty, many children of school age, and few wealthy property owners may be unable to adequately fund their schools even with a strong tax effort (i.e., a high tax rate).
This disparity is exacerbated in U.S. metropolitan areas where wealthier families have more residential options. School districts may compete to attract net fiscal surplus residents—highly employable, steady taxpayers, with few children in need of public services—and repel net fiscal deficit residents— marginally employable, unsteady taxpayers, with many children—through restrictive zoning regulations that raise the entry price for housing out of their reach.
Few school systems provide all educational goods and services completely free of charge to students and parents. The amount of private expenditure on schooling varies from small fees required for optional “extras” (e.g., expenses for sports equipment or field trips) to most of the cost at independent private schools in systems that receive no government subsidy.
Generally, a tradeoff exists between government funding and independence from government rules and regulations. Some countries have three types of funding regimes: virtually complete government funding for government-run schools, some government funding for privately run schools that meet government rules and standards (i.e., charter schools), and no government funding for schools free of government rules and standards.
The proportion of school funding provided privately also tends to rise with grade level. This relationship acknowledges that some human capital is more socially beneficial and some more individually beneficial. Conventional wisdom holds that it is in society’s interest to educate its young to that level at which they become contributors rather than burdens. But, past that point, the returns to education may accrue more to the individual, and many feel that education consumers should pay their own way for higher and professional education.
In the United States and elsewhere, the amount of government funding provided each school is determined largely by student headcount per formula—the most common type being afoundation formula. The “foundation” is the amount of funding provided a school for each regular student enrolled. Per-student funding then increases by some fractional increment above the foundation to accommodate the needs of students in special circumstances (e.g., those with disabilities, in vocational education, economically disadvantaged, non-native speakers) that require greater expense.
A popular indirect method of funding schooling is through tax expenditures—measured as the amount of potential government revenue forgone due to a tax exemption. For example, educational institutions, even those privately run, may be freed of some of the tax obligations imposed on non-educational organizations. For another example, student expenses for tuition or fees, or revenue from scholarships, may be allowed as income tax deductions or credits.
Education accounting nomenclature divides expenditures into functions, or activities, and objects— things and people. Total expenditures are also classified as current (i.e., recurring items) or capital (i.e., long-lasting items, such as buildings and furniture). Debt service is the periodic payment of principal and interest on bonds.
- Becker, Gary. 1994. Human Capital. 3rd ed. Chicago: University of Chicago Press.
- Bray, Mark. 2002. The Costs and Financing of Education. Hong Kong: Asian Development Bank.
- Mincer, Jacob. 1993. Schooling, Experience and Earnings. Hampshire, England: Ashgate.
- Musgrave, Richard A. and Peggy B. Musgrave. 1989. Public Finance in Theory and Practice. New York: McGraw-Hill.
- Phelps, Richard P. 2002. “The Impact of Funding Adequacy Litigation.” Briefings on Educational Research 2(1). Retrieved March 26, 2017 (http://education-consumers.org/issues-public-education-research-analysis/court-ordered-spending/impact-funding-adequacy-litigation-article/).
- S. Department of Education. 1997. “International Education Expenditure Comparability Study.” NCES Working Papers 97-16-17. Retrieved March 26, 2017 (https://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=9716).
- S. Department of Education. 2001. Public School Finance Programs of the United States and Canada: 1998-99. NCES 2001-309. Retrieved March 26, 2017 (https://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2001309).
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