Nova workboard

a blog from young economists at Nova SBE

Financing Public Education

Education is one of the most traditional positive externality examples – it generates increases in productivity, GDP and improves standards of living. As a good, it is considered mixed, a public good in some concerns and private in others. Publicly funded education has the fundamental purpose of many other public policies, to promote equal opportunity. But at what cost? It is never easy to make the population understand that they are not paying taxes to fund others’ benefit – but for social, and consequently, their own benefit as well. Such is the case when new technologies
are developed and services are provided with quality, in a well-educated world. [1] And even if we could get this message across to everyone, the question would remain: How much of public education should be funded by taxes, and which?

Prior to being allocated to different projects and regions, public education money, especially for mandatory schooling, has to come from somewhere, and there isn’t yet a consensus about it. Particularly, Europe’s approach to this question differs from that of the United States.

In Portugal, this distinction is not only unclear – it’s unintelligible. The funds used in education expenditure come from the State Budget, which includes all Government revenue, from which a share is applied in this framework. This percentage stays around 4 to 5% of GDP, and its fluctuations that can be explained by electo
ral cycles or macroeconomical ones[2]. Afterwards, funds flow through the beaurocracy until they reach, more or less indirectly, the school groups (“Agrupamentos”), as depicted in the flowchart below.[3]

For the case of the United States, as the administrative system is completely different, there are many diverse approaches across time and space. However, one example is the close link that the property tax has to education funding.

This kind of direct association between sources and applications oftax revenue can bring benefits and pitfalls. For instance, the way a tax on property effects the population may raise equality concerns, and changing tax policy with such direct correlation carries risk for education.[4] Besides, any risk connected to the volatility of the real estate market can result in direct repercussions in such an important part of society. On the other hand, the absence of a direct connection, like in Portugal, limits the ability of policy designers to change any aspect of education funding directly, such as local adjustments and decentralization.

Regardless of the method, it is important to take education as an investment which will have very serious long term consequences in society. Despite needing us to protect it from as many temporary shocks to the economy as possible, its need for funding subjects it, continually, to economic cycles.







Author: studentnovasbe

Master student in Nova Sbe

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