In other terms, a decrease in the fiscal deficit from one period to the next because of high external debt levels could signal an ongoing fiscal consolidation measure aiming to address debt issues.

It is important to note that Cit does not distinguish between expenditure-based and tax-based fiscal consolidation. A declining fiscal deficit can be driven by higher revenue or reduced spending. This may seem like a drawback for this study. However, with the assumption that any policy aiming to reduce the fiscal deficit could have implications for education spending, Fisconit allows to investigate the impact of various types of fiscal consolidation policies on education financing . To control for specific country effects, a random-effects probit model is applied to estimate equation 1 (Greene, 2017; Bland and Cook, 2019).

# _Fiscal consolidation and education expenditure_

As a rising debt service could contribute to a higher fiscal deficit, any eventual fiscal consolidation policy may have some implications for education expenditure. A higher debt burden could indeed reduce the resources available to finance government expenditure, thus reinforcing fiscal deficit. To cope with the fiscal imbalance, a fiscal consolidation policy could be conducted. Such a policy usually consists of expenditure cuts or rising taxes, or both, with potential implications for education expenditure. In fact, education spending being a component of total government expenditure, any changes to government expenditure or revenue may impact education spending.

To link fiscal consolidation and education spending, the following econometric model is estimated: Log(ESpendit) = θ0 + θ1LOG(ESpendit−1) + θ2LOG(Fisconit−1) +θ3ODAgwhit + θ4GDPgwhit + incgroupit + vit (4) with θ a set of parameters to be estimated, ESpendit government education expenditure of country _i_ at time _t_ . GDPgwh is the growth rate of the GDP per capita, ODAgwh the growth rate of the Official Development Assistance per capita, incgroup a set of country income group dummy variables, and vit the residuals. Education spending at time _t-1_ is introduced as a regressor to control for the effects of past spending on actual spending levels. In many countries, a large share of the education budget is dedicated to recurrent expenditure, including salaries. Because salaries may not be flexible in the short run, education expenditure at time _t_ may be strongly correlated with the expenditure at time _t-1_ .

It seems plausible to assume that after the start of a debt crisis, it takes time for an eventual fiscal consolidation to impact education spending. For this reason, the fiscal consolidation variable is delayed in equation 4. Education in developing countries is financed from internal and external resources (Fosu 2010; Al Samarrai et al. 2019). The GDP per capita growth rate is then included as a control variable for the availability of domestic resources while the growth rate of the official development assistance controls for the external support to the education sector. As countries with higher level of income may have greater resources to invest in education, incgroup is an additional control variable for countries’ income levels.

Equation 4 is dynamic and could face issues related to endogeneity and autocorrelation. The GDP per capita growth and education spending variables may be affected by a reverse causality problem.<sup>2</sup> To

> 2 On the one hand, increased education spending and an eventual improvement in the population’s education could boost economic growth. On the other hand, stronger economic growth could mean more resources to finance education.

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