Policies of educational financing - earmarking, Microeconomics

Policies of Educational Financing - Earmarking

Earmarking refers to setting aside and using the funds generated by a special cess/tax for the particular purpose for which it is collected. The programme of Sarva Shiksha Abhiyan is also adopting this method for meeting the major part of its funds. An important aspect of this kind of a tax is its ready social acceptance. When the benefits by a tax is properly communicated to the masses, they are readily accepted. Many countries, both developed and developing, have adopted this course to generate funds for educational purposes. For instance, earmarked taxes have been used for education in US at the state level e.g. in Indiana, Arkansas, Tennessee, and South Carolina in the 1980s. While Indiana levied a tax on the corporate and personal income to fund the governor’s programme of educational excellence, the latter three states raised the resources through sales tax of 0.01 per cent to mobilise significant resources for funding school educational needs. Likewise, introducing a five-year education tax on liquor, tobacco, interest and dividend income, and on the banking and insurance industries, South Korea could generate 15 per cent of the education ministry’s budget during the 1980s.

This tax generation method was continued later for another five years. Nepal, Phillipines, Pakistan have also generated funds for educational programmes by special cess levied for the purpose (Mehrotra, 2004). The case of Brazil, with 27 states and 5559 municipalities, which generated earmarked revenue to a tune of over one-third of total government spending by levying a 2.5 per cent salary tax on the wages of employees in the private sector to finance exclusively its primary education programmes is more relevant to the Indian situation.

Which level of government (centre/state/municipalities) is appropriate to levy tax is an important issue in earmarking ventures. For instance, in India, despite the increased commitment, to the cause of elementary education in the country, the performance of states with respect to enrolment and literacy in the 1990s was highly inconsistent. In other words, there is a need for better equalisation of per capita resources for elementary education across states. The educational fund in Brazil (FUNDEF), helped in the equalisation of expenditure capacity in education between the poorer and the richer states. With the aim to reduce pay inequalities across the states and within the education sector (a factor having the potential to contribute to quality in teaching), 60 per cent of the resources spent on primary education were earmarked for wages and salaries and the remaining 40 per cent to finance capital outlays and operation and maintenance.

Posted Date: 12/17/2012 7:02:16 AM | Location : United States

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