Municipal and private sector response to decentralization and school choice

Abstract

A large number of developing nations are in the process of decentralizing basic education, with the aim of diversifying revenue sources and introducing greater accountability and efficiency. This is especially true in Latin America, where Chile introduced the first significant reform in 1981. This reform kept most of the responsibility for educational finance with the Ministry of Education but transferred the responsibility for delivering services to municipalities and non-profit, private schools. In response to this reform, municipalities increased their finance of public schools, and the supply of subsidized private education increased dramatically. By 1990, enrollment in subsidized private schools represented about one-third of total primary-secondary school enrollments. This paper examines the effects of the reform. Municipal finance, which is closely tied to municipal fiscal capacity, has created inequities in school expenditures even though it represents only 10% of total revenues. Variations in the private school market share across municipalities are principally explained by the ease of market entry, family socioeconomic status, and the relative performance of public and private schools; this model does not offer a satisfactory explanation of the growth in private school enrollments in Chile over time. The effect of the reform on cost-effectiveness is ambiguous. Ministry of Education non-teacher employment declined by over half, while cognitive tests also declined. There is some evidence that the growth in private school enrollments may have improved overall efficiency since private schools are found to be slightly more cost-effective than public schools.