Lessons for the design of fiscal transfers to improve student learning and reduce learning gaps: the case of Colombia

Among education economists, there has been a long-standing debate around whether and to what extent money matters to improve student outcomes. The source of the debate comes from data showing weak correlations between per-student expenditures and learning outcomes. The data suggest that there is a wide range of student performance at almost each level of per-pupil spending. Yet, anyone who has visited low-resourced schools, whether in sub-Saharan Africa, South Asia, Latin America, or even in disadvantaged communities across developed countries, has to question whether money does not matter. And previous research has shown that when education systems are grouped into high spenders and low spenders, we can identify a cutoff point below which more education spending, indeed, is related to higher student learning. While the question of whether increasing investments in education can improve student outcomes has largely been answered, how best to allocate funding to educational administrations and institutions to enhance learning and reduce learning gaps remains unclear. Yet, improving how financial resources are allocated throughout the education system is important to jumpstart the stagnant progress in student learning across much of the world, especially in Latin America and other developing regions. Previous research from school finance reforms in Chile found that when the per-student funding formula was modified to account for variation in student demographic characteristics (providing more resources to students from disadvantaged backgrounds) and to hold educational institutions accountable for student learning (as opposed to only enrollment and attendance), student learning improved and gaps in student learning by socioeconomic background declined (Murnane and others, 2017). Colombia provides a useful case to analyze the impact of changes in school finance policies. During the last decade, the country introduced important in fiscal transfers from the national government to subnational entities aimed at improving access to quality education. In this policy brief, I synthesize the results of a recent analysis of these reforms and their impact on student outcomes. To do this, I first provide a brief background on the country’s school finance system and how it evolved over time. Then, I analyze the relationship between levels of funding and learning outcomes during the years 2002-2021. Third, I examine changes in the funding formula granted by the national government to subnational entities to better understand the impact of these reforms on average student learning and on learning gaps. In the last section, I discuss the findings and policy implications.