The Relationship between Educational Expenditures and Outcomes

This paper presents a survey of the large empirical literature in economics that has sought to examine the relationship between educational expenditures and outcomes in both developed and developing countries. The main feature of this literature is the remarkable lack of consensus about the results of standard studies using the ‘education production function’ conceptual framework, whether at the macro or at the micro level. Experimental evidence that has recently started to accumulate may provide more reliable guidance to policy interventions aimed to improve attainment and achievement. Another strand of literature is emphasizing the incentives structure of the school systems, which affects the way in which available school resources are combined to ‘produce’ outcomes. However, the ability of economists to adequately model the functioning of schools could be further enhanced by making use of insights from other social sciences, e.g. social psychology and sociology, pertaining to the behavior of teachers and students. Although they remain quite marginal to the field, recent behavioral economics papers may provide a basis for such a renewal of the economics of education.