The efficiency–equity trade-off of schooling outcomes: public education expenditures and welfare in Mexico

Abstract

We analyze how a central government allocates resources to states in the education sector. In particular, we use two relevant criteria in the decision-making process: the equity–efficiency trade-off and unequal concern with respect to the characteristics of states. We perform empirical tests of Mexican state-level education expenditure by the Federal Government and examine changes in allocation patterns by comparing 1980 and 1990 cross sections. A two-sector model is considered in a welfare maximizing context, which allows for a theoretical as well as econometric solution for jointly determined educational expenditure and production. This joint modeling is important, and we provide for a straightforward and easily replicable solution. The addition of the roads sector provides an instrument for endogenously determined expenditure in schooling production. We find that the Federal Government trades some efficiency for gains in equity, but in doing so treats states differently, and that results have changed over time.