Transcript Diapositive 1 - United Nations Economic Commission for Africa

Public education spending and poverty in
Burkina Faso: A CGE approach
Presented by:
Lacina BALMA
Prepared for African Economic Conference
Addis Ababa, October 26-28, 2011
1
Background/Rational
•With an average GDP growth of 5.1% over the last 10 years, BF remains
one of the poorest countries and has consistently scored very low on all
social indicators, with a national poverty rate of 43,9% in 2010.
•The government in power over more than 20 years has renewed its
commitment toward reducing poverty through its 2010 “Strategy for
Faster growth and Sustainable Development” and expects to reach
double digit GDP growth over the next five years.
•An important pillar of its new development plan is to increase access to
basic services, in particular by deepening the human resource base as a
means of promoting sustainable growth.
2
Background/Rational (cont.)
•Poverty-reducing outlay reached an
average of 24% over 2007-09, up from
22% in 2001-06
•Education was given an important
share and amounted for more than 40%
of the total social spending over the last
10 years
Poverty-Reducing Expenditure
300
(In Billion of CFAF)
250
200
150
100
50
0
•In line with its new poverty reduction
strategy, the government launched a
ten-year development plan for
education in 2010 aiming to increase
school enrollment rate an improve the
efficiency and the quality of education.
•Rational: in light of this background,
testing empirically an increase in public
spending in education in a context of
constrained fiscal space could
stimulate policy debate.
2005
50.0
2006
2007
2008
2009
%Total Poverty-Reducing Social Expenditure
40.0
30.0
20.0
Health
10.0
Education
0.0
2000
Others
2002
2004
2006
2008
2010
Objectives
Main objective
• analyze the effect of allocating additional
resource to education on welfare and poverty
Specifically
• 40%-increase of resource allocated to primary
education sector through two alternative
domestic financing mechanisms:
(1) raising sale tax;
(2) raising income tax.
4
Methodology
• Total spending (private and public) per student in primary education
Private. unit cost of Prim.
Educ
Pub. unit cost of Prim.
Educ
CEDT h,edb=  h ,edb + TEDh
• Gov. Expenditure in primary education
G
edb
Total volume of students
q
 TEDh *  s LSh
h
h
• Gov. budget constraint
SG  YG  Pc
edb
G
edb
 Pc
eds
Geds  Pc
ser
Gser  transfers
• Compensating Variables: sale tax and income tax
5
Methodology (Cont.)
•Household labour income maximization
Private spending on
Prim. Educ
Labor income
Max q YH
h
h
q
q
q
 Wnq (1 ) LSh Wq (1 s )  LSh  h ,edb *Pcedb *s LSh
h
h
h
 non  labor income - Pc
eds
ED h , eds
CET function
1
l
l  l
 l q
k
l
q
k
s . t . LSh  B   h [  h LSh ] (1  h )[(1 h ) LSh ]  k
h
l
Net gain of education
•Resulting demand function
 hq
1 hq
=


Wq


Wnq

 skills premium

l
sWq
Wnq
opportunity cost

s  h ,edb Pcedb
Wnq
direct cost






 
l
h
(1   ) 
l
h
6
l
Simulation and Results
40%-increase in Pub. Unit Cost of Prim.
Educ.
Government
Household
Supply of education (govt.)
Private Cost (direct effect)
Expenditures
Net Gain
Taxes (income, sale)
Demand for education
(household)
Factors endowment (supply):
Qualified labor
Factors Market :
Qualified Salary
Unqualified Salary
Unqualified labor
Gross Income
Consumption prices
7
Simulation and Results
•Decline in the number of poor
in the country (-0.42%).
Impact on poverty (40%-increase in Prim.
Educ. Spending by Gov. compensate with
7.2% income tax increase
All
Δ% Poverty rate
Independent and inactive
Δ% Consumer Price Index
Livestock farmers
Income
Subsistence farmers
Cotton farmers
Private informal workers
Public and private formal
workers
-1.0
-0.5
0.0
0.5
1.0
•The poverty rate among both
households informally working
in the private sector and cotton
farmers remains unchanged,
while all other household
categories experience a decline
in poverty.
•The second scenario (same
govt. spending compensate
with 2% sale tax increase leads
to a lesser decrease in the
number of poor across the
economy (-0.33%), a decrease
that also varies by socioprofessional category.
1.5
Policy implication
• This study shows that a public education spending policy in
Burkina Faso would have substantial and differentiated
impacts which benefit the poor and non-poor alike. It also
highlights that the method of financing an additional spending
policy in the education sector conditions the impact of the
policy.
• According to the simulation results, financing the policy
through a tax on household incomes would have greater
redistributive effects – a greater decrease in the number of
poor households – than if it is financed by a sale tax. This
finding shows that the government must choose wisely when
considering policies to domestically finance education policy.
9
Way forward
• Endogenize the level of secondary and postsecondary education in a dynamic model
• Further segmentation in the labour market :
unqualified labour, primary qualified, secondary
qualified and post-secondary qualified.
• Allow households to make more complex decisions
by allowing them to select the level of education
they wish to attain through investments in
education.
10