Evaluating the Impact of School Decentralization on Educational Quality

Decentralization is a major feature of current institutional innovation throughout the world. In Latin America, most countries have recently implemented decentralization policies following a long tradition of centralized government.¹ Argentina has not been the exception. The decentralization of educational services from the federal to provincial governments was an important component of the structural reforms undertaken in Argentina in the early 1990s.

The main argument in support of decentralization policies is that they bring decisions closer to the people. Information asymmetries, agency costs, and problems of collective decisionmaking can be alleviated through decentralization. Decentralization can worsen the provision of public goods, however, in the presence of positive spillovers, lack of technical capabilities by local governments, or capture of low-level administrations by the local elite. The theoretical literature identifies trade-offs without establishing universal superiority of either centralization or decentralization in the provision of public services. The problem needs to be analyzed empirically.

In this paper, we evaluate the effect of secondary school decentralization on educational quality. Between 1992 and 1994, the Argentine national government transferred all its dependent secondary schools to the provincial governments.² This political experiment generated an exogenous variation in the jurisdiction of secondary school administration across time and space. We exploit this instrument to identify the causal effect of school decentralization on educational quality, measured by the outcome of a standardized test in Spanish and mathematics administered to students in their final year of secondary school.

An advantageous feature of our study is that not only do we control for the effect of the evolution of observable variables on student test scores, but by contrasting public and private school test outcomes, we also control for the effect of unobservable factors that could differentially affect the evolution of student performance in each province. Thus our estimator of the effect of school decentralization on test outcomes is the conditional difference-in-difference of the difference of public and private test outcomes. Our results suggest that, on average, decentralization resulted in better student performance.

As theoretical results suggest, we also interact the decentralization policies with measures of provincial characteristics: fiscal performance, political alternation, and size (surface area, population, and population density). We find that the effect of school decentralization on test outcomes is heterogeneous with respect to provincial fiscal performances. The effect of decentralization on test scores is positive when schools are transferred to provinces that are fiscally in order, but it becomes negative when provinces run significant fiscal deficits. If fiscal performance is a proxy for the technical capabilities of local administrations, our results suggest that decentralization is deleterious when services are transferred to low-quality local governments. We also find that the effect of school decentralization on test outcomes is not heterogeneous with respect to the other characteristics interacted.

Two related papers analyze the effect of decentralization on education in Argentina. Their approaches are quite different from ours. Eskeland and Filmer find that school decision autonomy and parental participation (proxied by survey measures) raise test scores.³ However, their cross-section study does not rule out the possibility that autonomy and participation are endogenously determined. Habibi and others find a positive effect of fiscal decentralization (measured by revenue-sharing ratios between the provinces and the federal government) on secondary school enrollment at the provincial level.⁴ Since the authors do not control for trend or year effects, their results may be capturing a spurious correlation. Neither paper analyzes an explicit policy intervention of school decentralization.

The organization of the paper is as follows. The next section discusses potential trade-offs in school decentralization, while the subsequent section explains the process of decentralization of secondary schools in Argentina. We then describe our empirical exercise and present the results. The final section summarizes our conclusions.

The Trade-offs of Decentralization

As mentioned above, the theoretical literature identifies trade-offs without establishing absolute dominance of either centralization or decentralization in the provision of public services. Oates considers central governments that produce a common level of public goods for all localities, while local governments can tailor public goods...