Yardstick Competition in Education Spending: a Spatial Analysis based on Different Educational and Electoral Accountability Regimes

This paper aims to test the existence of yardstick competition in education spending using panel data from Brazilian municipalities. The paper estimates two-regime spatial Durbin models with time and spatial fixed effects using maximum likelihood, where the regimes represent different electoral and educational accountability institutional settings. Electoral accountability regimes are represented by the incumbents' status - lame-duck or first term in office - and by the voting margin held by the incumbents at the city council - more or less than 50% of the seats. As regards the educational accountability regime, this paper relies on the institutional change introduced by the local level disclosure of an education development index (IDEB, Basic Education Development Index) accompanied by yearly goals. The results show evidence for yardstick competition in education spending. Spatial auto-correlation is lower among the lame-ducks and higher among the incumbents with minority support at the city council. In addition, the institutional change introduced by the IDEB reduced the spatial interaction in education spending and also in the input-setting, which can be attributed to the new incentives for incumbents to follow the national best practices in an attempt to signal their competence to voters, thus reducing the importance of local information spillovers.