Appendix 5: Percentage of Boarding Students Receiving Living
4.6 Financial Neutrality: The Relationship of Inter-county
4.6.1 The Relationship of Inter-county Inequity
GDP is usually used to measure the development level of economics. In this study, we use per capita GDP instead of economics, and we use per capita recurrentfiscal revenue to represent thefinancial ability of the county government. According to Odden and Picus (2000), if the correlation coefficient is less than 0.5 and the elasticity (the coefficient of w) is less than 0.1, the educationfinance system in a region satisfies the financial neutrality criteria. Therefore, we compute the corre- lation coefficient and elasticity to measure whetherfinancial neutrality exists. We also can say whether the transfer payment from central and provincial governments eliminates the inequity of fund inputs caused by local economics and financial ability.
4.6.1.1 Relationship of Per Student Regular Expenditure with Per Capita GDP
According to the criteria of the correlation coefficient being less than 0.5 and elasticity less than 0.1, Guangxi in 2005 and Hubei in 2005 and 2006 did not achievefinancial neutrality. In other years, the four provinces are under the rule of financial neutrality. Although most of correlation coefficients in Table4.16are less than 0.5, we also wish the coefficient ofwto not be significantly higher than 0.1.
However, as shown in Table4.17, most of the w values for per capita recurrent fiscal revenue are higher than 0.1. Therefore, if per capita GDP is increased by 1 Yuan, the per student average regular expenditure will be increased by 0.101 Yuan at least or 0.358 Yuan at most. Local economic development level still has some significant influence on per student average regular expenditure.
Thewvalue for Guangxi and Hubei increased until 2003, thenfluctuated. The wvalue for Zhejiang constantly increased. Heilongjiang’swvalue increased until
2004, then decreased in 2005, and increased again in 2006. In each province, the wvalue of both primary schools and junior secondary schools presents the same change trend.
4.6.1.2 Relationships of Per Student Regular Expenditures with Per Capita Recurrent Fiscal Revenue
When the county government takes responsibility for financing compulsory edu- cation, itsfinancial ability determines the amount of funds inputted into compulsory education more directly than the economics development level. Therefore, the inter-county inequity of per student average fund input is determined by inter-county differences infinancial ability. However, since the rural tax-fee reform and county-centered system was implemented from 2001, central and provincial governments started to provide more and more transfer payments for county gov- ernments. Thus, the inter-county inequity of per student average fund input may be reduced or even eliminated.
Table 4.16 The correlation coefficient of per student average regular expenditure with per capita GDP
Province 2001 2002 2003 2004 2005 2006
Primary schools
Guangxi 0.23 0.231 0.264 0.492 0.534 0.331
Hubei 0.126 0.224 0.334 0.239 0.591 0.589
Zhejiang 0.027 −0.033 −0.058 0.113 0.181 0.384 Heilongjiang 0.02 0.163 0.276 0.355 0.183 0.301 Junior
secondary schools
Guangxi 0.408 0.433 0.362 0.411 0.521 0.17
Hubei 0.082 0.232 0.186 0.209 0.595 0.612
Zhejiang 0.223 0.215 0.218 0.321 0.281 0.417
Heilongjiang 0.025 0.052 0.161 0.308 0.001 0.265
Table 4.17 The elasticity of per student average regular expenditure with per capita GDP
Province 2001 2002 2003 2004 2005 2006
Primary schools
Guangxi 0.229*** 0.343*** 0.353*** 0.333*** 0.353*** 0.097 Hubei 0.07 0.122* 0.274*** 0.135** 0.358*** 0.298***
Zhejiang 0.082 0.04 0.034 0.081 0.11** 0.203***
Heilongjiang 0.007 0.091* 0.196*** 0.166*** 0.101** 0.111***
Junior secondary schools
Guangxi 0.196*** 0.265*** 0.332*** 0.243*** 0.254*** 0.038 Hubei 0.047 0.168*** 0.173** 0.115** 0.351*** 0.298***
Zhejiang 0.188** 0.144*** 0.176*** 0.198*** 0.206*** 0.256***
Heilongjiang 0.01 0.056 0.123 0.207** 0.012 0.119 NoteThe other control variables of all models include the logarithm of number of students, while the Ordinary Least Squares (OLS) model of data for three provinces includes year and province variables
*,**, and***represent significance levels of 10, 5, and 1 %
Thefinancial ability of the county government only has a very small influence to fund inputs for compulsory education. We used recurrentfiscal revenue to represent the financial ability, which does not include any transfer payments from central, provincial, and municipality governments. Like the criterion developed by Odden and Picus, the correlation coefficient of the per student average regular expenditure with per capita recurrentfiscal revenue should be less than 0.5 and the elasticity of regular expenditure with recurrentfiscal revenue should be less than 0.1 at the same time.
Primary schools not achieving financial neutrality included Guangxi in 2005;
Hubei in 2006; Zhejiang in 2002, 2005, and 2006; and Heilongjiang of 2003. Junior secondary schools exceeding the rule for financial neutrality included Guangxi in 2002 and 2003, Hubei in 2006, and Zhejiang in 2001 and 2002. Although the correlation coefficient in most years is lower than 0.5, the elasticity is significantly higher than 0.1, except for primary schools in Heilongjiang in 2006. In 2001, if per capita recurrent fiscal revenue increased by 1 Yuan, per student average regular expenditure increased by 0.414 Yuan at most or 0.213 Yuan at least. In 2006, under the same conditions, per student average regular expenditure increased by 0.32 Yuan at most or 0.098 Yuan at least. This demonstrates that localfinancial ability still has an important influence on regular expenditure.
Based on the analysis of the relationship between per student average regular expenditure and per capita GDP and recurrent fiscal revenue, we found that financial neutrality did not happen every year. However, under the absolute financial neutrality, the correlation coefficient may not be equivalent to 0, but the elasticity must be 0. According to this, the government at the higher level of county must make more of an effort to achievefinancial neutrality (Tables4.18and4.19).
Table 4.18 Correlation coefficient of per student average regular expenditure with per capita recurrentfiscal revenue
Province 2001 2002 2003 2004 2005 2006
Primary schools Guangxi 0.32 0.382 0.442 0.463 0.531 0.47
Hubei 0.441 0.267 0.427 0.435 0.444 0.666
Zhejiang 0.418 0.587 0.405 0.216 0.548 0.58 Heilongjiang 0.418 0.348 0.59 0.31 0.447 0.392 Junior secondary
schools
Guangxi 0.439 0.625 0.522 0.469 0.412 0.277
Hubei 0.425 0.334 0.221 0.495 0.435 0.571
Zhejiang 0.702 0.525 0.414 0.316 0.48 0.455
Heilongjiang 0.318 0.429 0.417 0.356 0.191 0.203