Education Spending: Impacts on Human Capital Development

What does it mean for a government to invest in education? Is it just spending money on schools and teachers, or does it include family benefits spending that specifically targets parents and their children who will be going to school? This dissertation expands the definition of education spending so that in addition to expenditures allocated to schools (supply-side expenditures), it includes benefits that enable all children to participate in the education system (demand-side expenditures). The simultaneous funding of both schools and family benefits, I argue, contributes both directly and indirectly to the development of a country?s level of human capital, or students? level of marketable skills and knowledge. This dissertation presents evidence that both types of expenditures do make a difference for students ? especially those coming from the most disadvantaged circumstances.

To evaluate how spending matters for human capital development, I develop an Education Policy Index (EPI) capturing each country?s policy choices. The EPI features supply-side spending or expenditures allocated to schools for teachers and staff compensation, curriculum, and capital expenditures, as well as demand-side spending or expenditures allocated to families in the form of cash benefits, benefits in kind, and student financial aid. The political and economic factors that impact countries? spending choices, namely proportionally representative electoral systems, left-leaning leadership ideology and the strength of organized labor, are evaluated and are strongly correlated with increases in spending on families relative to schools. How education-spending policies affect students? commitment to school as measured by enrollment rates, and how schools impact student performance as measured by cross-national assessments of skills and knowledge in 33 countries is also explored; family spending helps enrollment rates and investment in schools strongly correlate positively with student performance. Lastly, the dissertation examines how spending impacts students? individual academic and professional expectations. Case studies of three schools in a rural municipality in Mexico show that when governments invest in families, it has an impact on students? commitment to their education and their professional expectations, their social capital. This effect is especially apparent for girls. Thus, spending can have a direct and indirect effect on human capital development.