Concerns over the quality of education and effectiveness of government education spending resulted in significant changes to the school grants program. Despite public and private spending levels considerably higher than most other provinces, schools in Jakarta only ranked in the middle of the national examination distribution (Figure 1). In 2014, Jawa Timur achieved comparable examination results as Jakarta but spent only half as much per student (World Bank 2014). These large differences in spending efficiency led the Jakarta government to introduce a performance component to their school grant program to tie funding more closely to performance.<sup>5</sup> The performance component of the grant was announced in 2014 and gave the best performing schools an additional per student allocation equivalent to 20 percent of the basic grant allocation (Table 2).<sup>6</sup> Performance was judged along two dimensions: average examination performance over the last two years (2013 and 2014) and the percentage point improvement in performance over the same period. The ranking of schools along these two dimensions was averaged and schools in the top quartile (25%) were awarded the performance component grant in the following year (2015).<sup>7</sup> For primary and junior secondary schools, the ranking exercise was conducted separately in each of Jakarta’s six districts to incentivize more schools and make the scheme more equitable. In particular, the district ranking exercise ensured that schools in catchment areas serving students from similar backgrounds were competing against each other rather than schools in more affluent parts of the city.

**Table 2: Grant funding formula and the number of government schools in Jakarta by district, 2015**

||**Primary**<br>**(SD)**|**Junior**<br>**Secondary**<br>**(SMP)**|**% of schools**<br>**that receive**<br>**allocation**|
|---|---|---|---|
|**Monthly per-student value o**|**f grant compo**|**nent IDR 000s (USD)**||
|Basic allocation|60 (4.5)|110 (8.2)|100|
|Performance<br>allocation|12 (0.9)|22 (1.6)|25|
|Equity allocation*|12 (0.9)|22 (1.6)|1|
|**Total number of schools**||||
|Jakarta Barat|361|50|-|
|Jakarta Pusat|203|36|-|
|Jakarta Selatan|375|65|-|
|Jakarta Timur|479|95|-|
|Jakarta Utara|197|38||
|Kepulauan Seribu|14|7|-|
|**Average school enrolment**|367|742|-|

Notes: Exchange rate for 2015 of IDR 13,389 to the US$ used to convert grant amounts from World Development Indicators database. Average enrolment data is for 2015 except in a small number of schools where information for

> 5 At the same time, an equity component was introduced to provide greater funding to schools in Kepulauan Seribu (Thousand Islands) that faced significantly higher operational costs given their remote location.

> 6 Senior secondary schools and madrassahs were also eligible for performance grants. However, due to data limitations the impact of the program in these institutions is not analyzed in the paper.

> 7 Which schools received the performance component was determined in August/September once the school year had ended and the examination results were published. Schools that were successful were given the additional funds in the following budget year which ran from January to December.

7