Fiscal Expenditure and Education Quality in China: A Regional Heterogeneity Analysis

In this paper, we explore whether fiscal input brings the raise of regional education quality. To discuss this relationship, we employ Chinese provincial panel data ranged from 2008-2016. By constructing a two-way fixed effect model, we find that provincial education quality is positively associated with the fiscal expenditure, and more specifically, educational expenditure. This correlation is robust even we consider other important factors such economy growth, industrial structure and population structure. Besides, since the regional heterogeneity across China, the relationship between fiscal spending, and education quality may exhibit different patterns, we thus split our samples into eastern region and non-eastern region. Empirical results indicate that our main argument only exists in non-eastern area, which refers to the western area, where expanding fiscal expenditure would be more efficient for the government to raise provincial education quality. Meanwhile, fiscal policy would be less efficient to raise education quality for eastern area, thus new policy instrument is necessary.