Initial conditions of a country are key to explaining differences in the magnitude of spending changes over a five-year period. When we examined initial levels of government spending as a percentage of GDP and the share of government spending devoted to education, we saw that those countries registering the fastest growth in public education spending were frequently those that started with more fiscal space, that is, a low share of the government budget spent on education and with a relatively small share of government spending in GDP. For example, in low-income countries, education accounted for only 13 percent of the government budget during the fastest episodes of growth compared with an average of 16 percent for all growth episodes.<sup>13</sup> In upper-middle-income countries, the fastest growth episodes occurred in countries with initial levels of total government spending accounting for 27 percent of GDP, compared to an average of 30 percent across all growth episodes. A simple regression analysis confirmed this negative relationship between initial government spending and changes in government spending (Table 6). Countries with higher initial levels of national income, higher rates of government spending as a percentage of GDP, and higher shares of education expenditures in the total budget had lower levels of public education spending growth during the five-year periods.

**Table 6: Association Between Changes in Education Spending and Initial Country Conditions**

|**Explanatory Variable**|**(1)**|**(2)**|
|---|---|---|
|Initial GDP|-0.03***|-0.01***|
||(0.005)|(0.005)|
|Initial Gov’t Spend (% of GDP)|-0.11***<br>(0.02)|-0.06***<br>(0.02)|
|Initial Educ. Spend (% of Gov’t)|-0.17***<br>(0.04)|-0.24***<br>(0.04)|
|Income Group Fixed Effects|No|Yes|
|Region Fixed Effects|No|Yes|
|N|852|852|
|R-squared|0.13|0.21|

_Source:_ World Bank calculations based on UIS and IMF data. _Notes_ : The table shows regression estimates of five-year change in total education spending in constant PPP-adjusted dollars (dependent variable) on initial country conditions. Standard errors in parentheses.

* p<0.10; ** p<0.05; *** p<0.01. All variables are logged.

# _3.2 Evidence on How Governments Have Translated Spending into Education Outcomes_

In the previous section, we explored how countries have increased their spending and how this was influenced by their initial conditions. However, having the _ability_ to mobilize resources for education is not enough to guarantee that those resources _should_ be mobilized from an efficiency point of view or that they _will_ be mobilized even if they should. So, the first question is: Should a country always aim for an ambitious increase in resources for its education sector? The answer is no. The desired level of public spending on education can depend on numerous factors, including the importance of competing demands on the public purse. However, a crucial consideration in determining whether a country should spend more on education, regardless of other demands, is the outcomes that can be realized from such an increase.

# **_Defining Our Outcome of Interest: Learning-Adjusted Years of Schooling (LAYS)_**

The first step in answering these questions is to establish the outcomes and spending measures of interest. Should governments focus on increasing enrollments, improving learning, or both? Since we are interested in both access to education and learning, we used a measure that captures the levels of educational attainment and learning of the whole population (not just of those who are in school). We used the Human

> 13 See Annex Table A6.

25