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School Funding Formulas: Review of Main Characteristics and Impacts

  • Mihály Fazekas

    (University of Cambridge)

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    This study provides a literature review on school funding formulas across OECD countries. It looks at three salient questions from a comparative perspective: i) What kind of school formula funding schemes exist and how are they used, particularly for promoting the needs of socially disadvantaged pupils?; ii) How do school formula funding regimes perform according to equity and efficiency standards?; iii) What are the unresolved issues? Formula funding of schools, as opposed to administrative discretion and bidding, relies on a mathematical formula containing a number of variables (e.g. number of pupils), each of which has attached to it a cash amount to determine school budgets. Across OECD countries there are four main groups of variables in such formulas: i) student number and grade level-based; ii) needs-based; iii) curriculum or educational programme-based and; iv) school characteristics-based. Sometimes output and outcome-related variables are also used. The performance of formula funding compared to alternative funding regimes is dependent on the details of the formula and on the wider education policy environment. Formula funding systems typically advance transparency and accountability at low administrative costs and in combination with matching complementary policy tools they can also contribute to equity and efficiency. Currently, there are several ongoing debates across OECD countries: First, there is an inherent tradeoff between transparency/simplicity and sensitivity to local conditions/complexity. Second, knowing how much educating to a given standard costs is problematic and subject to heated debates. The main reason for this is that the causal relationship between education costs and student performance is largely unknown and even the identified impacts appear to be relatively small. Third, even though resources are allocated according to need estimation, they might not be devoted to these needs. Fourth, it is still undecided whether the introduction of school formula funding regimes has changed actual school funding practice. Cette étude présente un examen de la littérature sur les formules de financement des établissements scolaires dans les pays de l’OCDE. Elle aborde trois questions qui méritent l’attention : i) Quels types de programmes de financement des écoles selon une formule préétablie existe-t-il et comment ceux-ci sont-ils utilisés, en particulier en ce qui concerne les besoins des élèves socialement défavorisés ? ; ii) Quels résultats ces mécanismes de financement des écoles fondé sur une formule préétablie permettent-ils d’obtenir eu égard aux normes d’équité et d’efficience ? ; iii) Quels sont les problèmes pendants ? Le financement des écoles selon une formule préétablie, par opposition au pouvoir discrétionnaire de l’administration et au système de soumissions, s’appuie sur une formule mathématique contenant plusieurs variables (par exemple le nombre d’élèves) dont chacune est attachée à une somme permettant de déterminer le budget des établissements. Dans les pays de l’OCDE, il existe quatre grands groupes de variables dans ce type de formule : i) le nombre d’élèves et les niveaux scolaires ; ii) les besoins ; iii) le programme d’études et le programme des activités éducatives et ; iv) les caractéristiques de l’établissement. Parfois, des variables liées aux résultats et aux réalisations sont également utilisées. L’efficacité du financement selon une formule préétablie par rapport à d’autres modes de financement dépend des détails de la formule retenue et de l’environnement général dans lequel opère la politique de l’éducation. Ces systèmes de financement ont en général pour effet de promouvoir la transparence et la responsabilisation pour un coût administratif faible et, associés à des outils complémentaires bien adaptés, ils peuvent aussi favoriser l’équité et l’efficience. A l’heure actuelle, plusieurs débats sont en cours dans les pays de l’OCDE. Premièrement, il y a un arbitrage à faire systématiquement entre, d’une part, la transparence et la simplicité et, d’autre part, la prise en compte des conditions et de la complexité au niveau local. Deuxièmement, la question de savoir à combien revient un enseignement d’un niveau de qualité donné est délicate et fait l’objet de vifs débats. La principale raison en est que la relation causale entre le coût de l’éducation et les résultats obtenus par les élèves est en grande partie inconnue et que les effets identifiés semblent être relativement peu importants. Troisièmement, même si des ressources sont allouées sur la base d’une estimation des besoins, il se peut qu’elles ne soient pas employées à la satisfaction de ces besoins. Quatrièmement, on ne sait pas encore si l’introduction de mécanismes de financement des écoles fondé sur une formule préétablie a changé les pratiques de financement des établissements.

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    Paper provided by OECD Publishing in its series OECD Education Working Papers with number 74.

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    Date of creation: 03 May 2012
    Date of revision:
    Handle: RePEc:oec:eduaab:74-en
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    1. Peter C. Smith, 2003. "Formula Funding of Public Services: An Economic Analysis," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 301-322, Summer.
    2. Gundlach, Erich & Wößmann, Ludger, 2004. "Bildungsressourcen, Bildungsinstitutionen und Bildungsqualität: Makroökonomische Relevanz und mikroökonomische Evidenz," Open Access Publications from Kiel Institute for the World Economy 3311, Kiel Institute for the World Economy (IfW).
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    7. Ladd, Helen F. & Yinger, John, 1994. "The Case for Equalizing Aid," National Tax Journal, National Tax Association, vol. 47(1), pages 211-24, March.
    8. Holmlund, Helena & McNally, Sandra & Viarengo, Martina, 2008. "Does Money Matter for Schools?," IZA Discussion Papers 3769, Institute for the Study of Labor (IZA).
    9. Caroline M. Hoxby, 1998. "All School Finance Equalizations Are Not Created Equal," NBER Working Papers 6792, National Bureau of Economic Research, Inc.
    10. Rosalind Levacic & Stephen Machin & David Reynolds & Anna Vignoles & James Walker, 2000. "The Relationship between Resource Allocation and Pupil Attainment: A Review," CEE Discussion Papers 0002, Centre for the Economics of Education, LSE.
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