WHEN DOES GOVERNMENT EDUCATION EXPENDITURE YIELD QUALITY GAINS? A NONLINEAR ANALYSIS OF FISCAL EFFECTIVENESS ACROSS ASIA

Across Asia, this study looks at how public spending on education impacts the quality of schools and considers the possibility that there may be a point at which extra expenditure will no longer improve standards. Using a dataset from 36 Asian countries for the year 2023, we applied a spline regression model to explore how education spending by governments (expressed as a percentage of GDP), the budget allocation to education, school duration and total pupil enrolment affected educational standards. This variation can be attributed to 86.8% by the model specifications. Across all segments of the cubic function, we found that the budgetary priorities and duration of schooling have a positive and statistically significant effect on educational standards. Total school intake was not found to be significant. Below a certain GDP level, fiscal policy’s marginal effect on the economy is very weak but beyond a certain threshold, such effects become quite significant. It appears that the fiscal situation in a country may mean that the way government funds for education is allocated could be more important than the amount of money available for education, at least in certain cases. From the viewpoint of public finance, the data obtained here highlights the need to consider expenditure efficiency, as well as the proper alignment of institutions, along with budgeting that is informed by results, in any moves to increase funding allocations.