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 2. Government Expenditure on Education as a Percentage of GDP, UNESCO Institute for

Statistics Database, UNESCO, Paris, data.uis.unesco.org.  3. The divisions of provinces and prefectures are usually stable, while counties and townships can merge or divide. At the end of 2000 (as compared to 1990), there were 31 (30) provinces, 333 (336) prefectures, 2,861 (2,833) counties, and 49,668 (65,188) townships in mainland China.  4. In 2003, China started a pilot reform that shifted the management and supervision of township finance upward to counties, although the township was still regarded as an independent accounting entity. In the same year, the government resumed a pilot reform aimed at

“flattening the governance hierarchies,” which required designated provinces to directly supervise some counties as well as their direct subordinate prefectures. By 2012, about 72 percent of townships were financially managed by counties, and about 37 percent of counties were directly supervised by provincial governments.  5. There are a small number of centrally affiliated pretertiary schools. The expenditure on these schools was less than 0.5 percent of the total expenditure on pretertiary schools in 2016.  6. As compensation for the reduction in local tax revenues under tax reform, a special form of transfer, known as tax return, is allocated to subnational governments based on a predetermined formula. We treated tax return the same way as other government revenues and did not consider it transfer. The scale of tax return has been declining substantially. In 2018, it amounted to only about 11.5 percent of total transfers and 7.6 percent of the subnational revenue, including tax return.  7. Opinions of the State Council on Reforming and Improving the Central-to-Local Transfer

Payment System, Guofa [2014] No. 71, http://www.gov.cn/zhengce/content/2015-02/02 /content_9445.htm.  8. In 2009, there was a sizable increase in the compulsory education transfer, which might be related to the three-year Safe School Building Project. It declined gradually thereafter.  9. Data limitations prevented us from distinguishing between general and conditional transfers at the provincial level. 10. China launched the massive college expansion in 1999–2005. The promotion rate for senior high school students increased from 46 percent in 1998 to 79 percent in 2001. 11. Report on China’s migrant Population Development 2018, National Health Commission of

China, http://www.nhc.gov.cn/wjw/xwdt/201812/a32a43b225a740c4bff8f2168b0e9688 .shtml. 12. Under the Texas Ten Percent Plan, students in the top 10 percent of their high school class are guaranteed admission to any public university in the state.

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The majority of the world’s children live in countries where local governments are responsible for the provision of basic education services. Although subnational governments manage their own education systems, they often rely on transfers from the central government for funding. The main purpose of this study is to assess how these fiscal transfers affect public funding for education and how they ultimately affect student schooling and learning outcomes.

Through a careful analysis of how fiscal transfers have affected education systems in different contexts, the investigation develops a set of principles to support improvements in the design and implementation of transfer systems with a specific focus on the provision of education services. The study is centered on seven country case studies that aim to answer a set of common research questions using a similar approach. Country case studies were conducted in Brazil, Bulgaria, China, Colombia, Indonesia, Sudan, and Uganda. The analysis shows that fiscal transfer mechanisms can improve the adequacy of public education spending, reduce spending inequalities between regions, and improve spending efficiency. Moreover, the study highlights that carefully designed and implemented transfer systems can help raise overall education outcomes and reduce education inequality.

This publication was funded by a grant from the Results in Education for All Children (REACH) trust fund at the World Bank. REACH is supported by the government of Germany through the Federal Ministry for Economic Cooperation and Development, the government of Norway through NORAD, and the government of the United States of America through the U.S. Agency for International Development.

ISBN 978-1-4648-1693-2