Essays on Education Decentralization

Paula Salinas-Peña

June 19, 2014

Albert Solé-Ollé

Differences in the division of education responsibilities between tiers of government and in the degree of autonomy the latter have to take decisions and raise their own revenues could imply differences in the level of efficiency with which these responsibilities are carried out. The aim of this study is, therefore, to analyze the effects of decentralization on the efficiency of educational policy, by examining the way in which different decentralization structures can have differential effects and by exploring the channels via which decentralization can affect educational outcomes. To achieve this, I first analyze the effects of a partial fiscal decentralization reform introduced in Spain at the beginning of the eighties, when educational responsibilities were devolved to regions that were not, however, granted any decision-making power for raising their own taxes. I believe that this study, reported in Chapter 2, makes a relevant contribution to the scarce empirical evidence gathered to date about the effects of decentralization on educational outcomes. First, this is the first study to analyze these effects in the context of a partial fiscal decentralization, which enables me to provide empirical evidence about one of the main points of debate in the fiscal federalism literature. Second, the way in which education policy has been decentralized in Spain, with a set of regions receiving educational powers at the beginning of the eighties and the remaining regions having to wait until the end of the nineties to receive the same powers, provides a unique benchmark against which to conduct a consistent identification of the effects of decentralization. Finally, I believe that the conclusions that can be drawn from this study are especially relevant at a time in which a process of recentralization of decision-making autonomy in the education sector in Spain is being undertaken. Second, I analyze the effects of decentralization on educational outcomes under different decentralization structures. That is, I analyze whether different degrees of subnational government autonomy, both on the expenditure and revenue sides, have the expected differential effects. The analysis in Chapter 3 contrasts with analyses reported in previous studies, since it draws on cross-national evidence to analyse the way in which different structures of expenditure and revenue decentralization have a differential impact on the efficiency of public education policies, a question hitherto unaddressed in this branch of literature. However, these studies tell us nothing about the process via which the educational outcomes might vary depending on whether a country operates a decentralized or a centralized system. In Chapter 4 I provide a number of insights into this question, by analyzing the role of teacher quality in a decentralization process, that is, how teacher quality might be affected by decentralization and the extent to which this effect explains the effects of decentralization on educational attainment. The relationship between decentralization and teacher quality has received little attention in the literature and, to the best of my knowledge, the study in chapter 4 is the first attempt to empirically analyze it. In addition to the empirical analysis, an effort has been made in Chapter 4 to summarize the arguments that underpin the relationship between decentralization and teacher quality. Finally, this is also the first study that seeks to analyze the process via which decentralization might affect educational attainment. The methodology used in this study to address this question, which decomposes the total effect of decentralization into a direct effect and an indirect effect via teacher quality has not been applied before in the economics of education empirical literature, which has always tended to focus on the estimation of reduced-form equations of educational attainment. Here, however, I estimate a structural model in which teacher quality variables are also considered endogenous variables. The three studies reveal that the effects of decentralization on the outcomes of the educational system are positive and, in line with theoretical prescriptions, that these effects depend on the autonomy of subnational governments and on the level of government awarded educational competences. Additionally, an important share of the overall effect of decentralization on educational outcomes is mediated through its effects on teacher quality.