Education outlay, fiscal transfer, and inter-region funding equity: a county-level analysis of education finance in China

Over the past three decades, education finance in China has transitioned, against the background of high economic growth and fast socio-political development, from a local-only financing regime to a new regime that involves a combination of local, provincial and central funding. Beginning in year 2000, the central and provincial governments have stepped in to reduce inter-region disparity and to improve equity and the overall quality of basic education throughout China’s vast rural areas. The fast-track transition provides a good window for scholars to study the impact of the changing education finance regimes. The paper analyses the differential effects of the local, provincial and central funding levels on the within-province equity of education finance, and provides evidence on how policy shocks in a fast growing economy can affect education provision in a transitioning system. We test the differential effects of the financing regime transition on the equity of education finance, taking advantage of provincial level data and a panel data set of county-level jurisdictions across the country. With a constructed inequity index, we examine the impact of policy shocks, controlling for multiple factors. While our results suggest the measures taken may have dampened growth in inequity, they do not provide evidence of improved equity overall, revealing that disparity is still growing between developed and less developed counties.