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The Positive Impact of Local Tax Capacity on Service Provision in Education

Table 3.2 presents the results of the OLS and the instrumental variables (IV) panel models for student enrollment in public school as a proportion of the population. The OLS model indicates that an increase of 1 percent on local taxes augments the enrollment rate by 0.007 percentage points, the result being similar to the 0.008 increase in enrollment obtained through central government transfers. The first stage of the IV model in column 2 indicates that, as expected, the cadastral undervaluation of local properties is negatively related to local per capita tax revenue. In fact, if the estimated undervaluation rises by 1 percent, tax revenue would fall by 0.11 percent. The first stage also reveals that royalties and intra-party competition are positively correlated with local per capita taxes. The second stage indicates that changes in tax capacity as prompted by changes in tax effort do indeed positively affect student enrollment. According to the coefficient, a 1 percent positive exogenous variation of local taxes increases by 0.021 the proportion of the population enrolled in public schools. Or in relative terms, if per capita taxes go up by one standard deviation (in log = 1.26), the educational enrollment rate would sizably increase by 0.58 (0.021 x 1.26/0.063) standard deviations.

As for the other variables, the coefficient of the central governments transfer is equal to 0.008 and similar to the one obtained using the OLS panel model. The impact of royalties on coverage is zero. It is apparent that the taxes coefficient is greater than that of the transfers. This result may intuitively suggest that higher taxes lead to greater awareness among citizens with regard to the allocation of the local budget, which, in turn, calls for greater efficiency in the local public sector.

Finally, the political variables are only weakly correlated with the enrollment rates in public schools. The local effective number of parties (ENP)

Table 3.2 Determinants of public school enrollment in Colombian municipalities, 1994-2009

Variables

The table has a weird format for the presentation of the results

OLS

I2SLS

IV

Decentralization

Per-capita taxes (ln)

0.00708***

0.0213* (0.0133)

(0.000587)

Per-capita transfers (ln)

0.00816***

0.017 (0.108)

0.00815***

(0.000628)

(0.000702)

Royalties

0.000113

0.004***

0.0000509

(0.0000722)

(0.00121)

(0.0000935)

Political

Effective number of parties

0.0185 (0.0186)

0.00254**

(0.00116)

Squared effective number of

-0.0038*

-0.000254*

parties

(0.0023)

(0.000149)

Intra-party competition

-0.0000939

0.0059***

-0.000109

(0.0000828)

(0.0015)

(0.000120)

Proportion of council members

0.00156

-0.043 (0.028)

0.00377**

from mayor's party

(0.00151)

(0.00180)

Council members re-election

0.0000613

0.0015 (0.0014)

0.0000438

average

(0.0000880)

(0.0000924)

Mayor from Conservative party

0.00191**

-0.00264

0.00181*

(0.000955)

(0.0161)

(0.000928)

Mayor form Liberal party

0.00105

-0.0308*

0.00123 (0.00107)

(0.000955)

(0.0162)

Constant

1.436***

(0.0293)

Instrument

Cadastral undervaluation

-0.1114***

(0.0242)

Municipal fixed effects

Yes

Yes

Yes

School fixed effects

Year fixed effects

Yes

Yes

Yes

P-test for instruments

21.05

Prob > P

0.000

Endogeneity test

21.11

Chi-sq(1) Rvalue

0.000

Observations

11,146

11,135

11,135

Source: See appendix

*,**,***: Coefficients significant at the 10%, 5%, and 1% levels, respectively. Panel regressions with robust standard errors. Standard errors in brackets

Poverty Rate, Gini of Land Value, Population (ln), Teacher-Student ratio (lagged), No Official Students- Population ratio (lagged) were included as controls

Enrollment: Groups by Municipalities: 917/906/906; Quality: Groups by Schools:

5482/5373/5373/5458/5346/5436

correlates positively with enrollment, as does intra-party competition, although the latter is not statistically significant. This is a result that seems to hold throughout the analysis, suggesting that local politics has less impact than the logic behind national politics as mediated by fiscal autonomy.

Table 3.3 presents both the OLS and IV panel model for the quality of education. The variables on the right are calculated both annually and as six- year averages (as it is assumed that the quality of education at the end of high school has its foundations in at least the previous six years). Quality is measured as the average school score of the senior high school students in the test SABER 11, relative to the test score of the average private high school of the department where the public school is located. The departmental average score was used, given that in many Colombian municipalities no private education is offered. The dependent variable is then

where j denotes the public school, i the municipality, t the year, and k the department where it is located.

Columns 1 and 4 show the OLS panel estimates of the relationship between per capita taxes and relative score. Such estimates reveal a positive, statistically significant correlation between the local taxes and test scores in public schools, especially in the six-year average. Moreover, a strong correlation is found between central government transfers and relative public scores, indicating that municipalities spend some of these resources on goods that help to raise the quality of education. It is noteworthy that the effect of local taxes on quality is substantially greater than the effect of transfers. The effect of royalties on the quality of education is negative, coinciding with the previous findings that null the effect of royalties on the welfare of the population (Gaviria et al. 2002; Perry and Olivera 2009). Column 2 presents the first stage of the quality of the education model. As expected, the estimated undervaluation of the local properties negatively impacts the local taxes. The political variables, again, do not exhibit a consistent relationship with the per capita taxes. For example, the variable-measuring intra-party competition is positive but with a low real impact, and low re-election average. This last variable would suggest that the more senior and successful the council representatives are at getting re-elected, the lower the educational score. Moreover, the mayor’s

Quality-ratio of SABER 11 of public to private schools

OLS

I2SLS

IV

OLS

I2SLS

IV

Vuriubles

Annual

Lust six years average

Per-capita Taxes (In)

Per-capita

  • -0.0001
  • (0.000329)
  • 0.00242***

-0.0236***

  • 0.0120**
  • (0.0008)
  • 0.00271***
  • 0.000675*
  • (0.000393)
  • 0.00257***

-0.0227***

  • 0.0192**
  • (0.00771)
  • 0.00300***

Transfers (In)

(0.000188)

(0.0030)

(0.000231)

(0.000205)

(0.00276)

(0.000274)

Royalties

-0.000149***

0.00006

-0.000151***

-0.000270***

0.00160***

-0.000302***

(0.0000131)

(0.0005)

(0.0000131)

(0.0000137)

(-0.00051)

(0.000041)

Politicul

Effective Number

-0.000500*

0.03045***

-0.000847***

-0.00121***

-0.03633*

-0.000553

of Parties

(0.000275)

(0.0044)

(0.000320)

(0.000422)

(0.0057)

(0.000513)

Squared Effective

-0.000701***

-0.030***

-0.000346

-0.000034

0.00294***

-0.000085*

Number of

(0.0000231)

(0.0037)

(0.000284)

(0.000042)

(0.00056)

(0.000048)

Parties

Intraparty

0.000108***

0.00047

0.0001***

0.000093***

-0.0018***

0.000128***

Competition

(0.00003)

(0.00047)

(0.00003)

(0.00003)

(0.00041)

(0.000033)

Proportion of

-0.00657***

-0.0247***

-0.00614***

-0.00710***

-0.0572***

-0.00605***

Council Members

(0.000707)

(0.0032)

(0.000745)

(0.000790)

(0.01067)

(0.000924)

from Mayor’s Party

Council Members

-0.000682***

0.0247***

-0.000948***

-0.000501***

0.0148**

-0.000759***

Reelection

(0.000201)

(0.0032)

(0.0000924)

(0.000132)

(0.00178)

(0.000173)

Average Mayor from

0.00148***

0.0154**

0.00128***

0.00302***

0.0212***

0.00260***

Conservative

Party

(0.000415)

(0.0066554)

(0.000432)

(0.000468)

(0.00178)

(0.000512)

(continued)

Quality-ratio of SABER 11 of public to private schools

OLS

I2SLS

IV

OLS

I2SLS

IV

Variables

Annual

Last six years average

Mayor form

0.00333***

0.0277***

0.003***

0.00356***

0.0361***

0.00289***

Liberal Party

(0.000353)

(0.00567)

(0.000391)

(0.000388)

(0.0052)

(0.000488)

Constant

1.023***

1.010***

(0.0196)

(0.0199)

Instrument

Cadastral

-0.0965***

-0.069***

U nder valuation

(0.0082)

(0.007)

Municipal Fixed

Effects

School fixed

Yes

Yes

Yes

Yes

Yes

Yes

effects

Year Fixed Effects

Yes

Yes

Yes

Yes

Yes

Yes

E-test for

136.86

97.74

instruments

Prob > F

0.000

0.000

Endogeneity Test

136.96

97.8

Chi-sq(l) p-value

0.000

0.000

Observations

41,316

41,207

41,207

40,827

40,715

40,715

Source: See appendix

******. Coefficients significant at the 10%, 5%, and 1% levels, respectively. Standard errors in brackets Per-Capita GDL (In), Poverty Rate, Gini of Land Value, and Urban Population were included as controls membership to the Liberal or Conservative traditional party is positively correlated with higher per capita taxes as well as higher relative scores. Most of the political variables, however, are not statistically significant.

Column 3 presents the second stage of the model. It can be seen that the exogenous variations of the local per capita taxes affect the relative score of the public schools positively and significantly. In fact, a change in one standard deviation of per capita taxes prompts a fairly substantial increase of 0.5 (0.0116 x 1.27/0.04) standard deviations in the relative test score of the public schools. In this regard, the local fiscal effort would be manifest in better quality of education. Columns 4 to 6 display similar results but using the variables on the right averaged over the previous six years under the assumption that the quality of education takes several years to improve (or worsen). The results obtained are quite the same.

 
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