Educational expansion and the role of education in expenditure inequality in Indonesia since the 1997 financial crisis

Based on the National Socio-Economic Survey (Susenas) from 1997 to 2011, this study examines the role of education in expenditure inequality in Indonesia under educational expansion since the 1997 financial crisis. This is achieved using the three decomposition methods: the Blinder-Oaxaca decomposition; the decomposition of the Gini coefficient; and the hierarchical decomposition of the Theil index. The expansion of education, particularly basic education in rural areas, appears to have not only lowered educational disparity between the urban and rural sectors but also educational inequality within the rural sector. Due in large part to the declining educational disparity between the urban and rural sectors, the urban-rural expenditure disparity has narrowed since the mid-2000s. On the other hand, the expansion of higher education in urban areas appears to have played an important role in the recent rise in overall expenditure inequality by raising not only disparity between educational groups but also inequality within the tertiary education group. Basic education policies would still serve as an effective means to mitigate expenditure inequality, as they could reduce not only educational gap between the urban and rural sectors but also educational inequality within the rural sector by raising general educational levels. Since the expansion of higher education in urban areas seems to be one of the main factors of the recent rise in overall expenditure inequality, higher education policies would also be crucial.