Small municipalities use central government transfers effectively to support their only general upper secondary school

According to a study by VATT Institute for Economic Research, the increased coefficient included in the central government transfer system to support small general upper secondary schools is an effective and clearly targeted policy measure. However, there are still differences between municipalities: higher share of pensioners is associated with municipalities directing less funding to general upper secondary education.

State funding for providing general upper secondary education is determined based on the number of students and student-specific unit price. Upper secondary schools with a small number of students receive central government transfers with an increased unit price coefficient. The aim is to support municipalities in cases where it is more expensive to provide upper secondary education due to a small student base.

The central government transfers are not earmarked for a given purpose, so in theory municipalities could use the additional funding to cover any expenditure. According to the study by VATT, however, in practice this is not the case. Additional funding received as central government transfers makes municipalities with a small student base invest in their only upper secondary school more. For this reason, supporting small municipalities in this way to provide general upper secondary education works as intended.  

“Our study shows that government transfers to small upper secondary schools are used effectively for the purpose they were granted, and they even make municipalities invest more in general upper secondary education. What we found is that small municipalities find it important to provide general upper secondary-level education locally, and the state wants to help them to be able to provide it in future also”, says chief researcher Mika Kortelainen.

However, there are differences among municipalities. Municipalities where the share of pensioners is higher than average direct less money to upper secondary education than municipalities where there is a high proportion of teenagers.

“Our study illustrates that policy measures can have very specifically defined targets, and yet the reactions of municipalities vary greatly, because municipalities are so different from one another. This should be remembered when renewing the central government transfer system”, says Kortelainen.

The researchers examined the costs of general upper secondary education and central government transfers to upper secondary schools in 2001–2014 and compared them to other statistics on municipalities’ revenue and expenditure, as well as population.

Mika Kortelainen and Antti Saastamoinen (2019) When does money stick in education? Evidence from a kinked grant rule has been approved for publication in the scientific journal Education Finance & Policy.
Link: https://www.mitpressjournals.org/doi/abs/10.1162/edfp_a_00284

The results have also been published in VATT’s publication series (VATT Working Papers 102): https://vatt.fi/julkaisu?pubid=URN%3A+ISBN+978-952-274-211-7

Further information:
Mika Kortelainen, Chief Researcher, Research Leader, VATT. Tel. +358 295 519 421