Chapter 6: Centralization Or Decentralization?: The Financing of Public Primary Education in China

There are large variations in the choice of a decentralized or centralized education finance system across countries. We examine the financing of public primary education in China as a unique case study. China has successfully established modern universal basic education in the century from 1912 with very different education finance systems in different historical periods, ranging from a completely decentralized education finance system to a completely centralized system. This chapter presents a brief summary of China’s public primary education finance reforms and then provides a credible causal evaluation of its most recent centralized reform in 2006 using confidential school finance data as well as survey and census data. Similar to the recent literature on the centralization education finance reforms in the United States, we find that the 2006 reform in China leads to an increase in educational spending that translates to increases in student school enrollment and academic achievement. We also document unintended reform consequences that call for further research and policy design improvements.