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

Manabu Nose ()

No 15/178, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Education spending; Wage increases; Unit labor cost; Developed countries; Developing countries; Econometric models; Parameter estimation; Public education expenditure, Baumol’s effect, wage premium, institutions (search for similar items in EconPapers)
Pages: 36
Date: 2015-07-28
New Economics Papers: this item is included in nep-edu and nep-ure
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Journal Article: Estimation of drivers of public education expenditure: Baumol’s effect revisited (2017) Downloads
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