No. 12




The Essence and Problems of the Financial Reform of the Estonian General Education System

14 December 2005


RiTo No. 12, 2005

  • Janno Reiljan

    Professor of Economics, University of Tartu

  • Ele Reiljan

    PhD, senior researcher in marketing, University of Tartu Faculty of Economics and Business Administration

Issues related to the funding of general education are very much the subject of debate not only in Estonia, but all over the world.

Many scientists have proposed various ways for raising the efficiency of financing systems (e.g. Aaronson 1999, Nechyba 2003) and thereby enhancing the sustainability of financing schools (Downes 1992, Murray et al. 1998). However, in this connection, it is extremely relevant to bear in mind that by educating children, schools have considerable influence on the economic, social, cultural and regional development of society. The absence or existence of a school in a town or village, and its educational standards are crucially important for people’s choices in finding a home or job, and thereby also determine regional differences in real estate prices. Because of the intricacy of the social relationships and effects, the alternative ways of financing education should not be viewed from the mere aspects of availability or standards of education, but from the aspect of usefulness of the school network as an aggregate whole.

The aim of the article is to evaluate the planned reform of general education funding in Estonia. The article relies on the information of the Ministry of Education and Research on the educational funds allocated by the number of pupils (per capita funding or the so-called capitation fee) from 2001 to 2005, and on the data about investment funds allocated to general education institutions by local governments from 1996 to 2004 in the framework of the State Investments Program.

The analysis indicates that in the implementation of the new general education funding system in Estonia, different development strategies need to be harmonized in order to ensure the application of the principle of equal treatment in the funding of schools. This assumes development of a methodology that would enable us to assess the sustainability of schools and implementation of a system that allows application of the resources provided by Riigi Kinnisvara AS (a state-owned company in charge of state property) by local governments with smaller financial capacity. All this requires profound analysis that takes into account the amount of investments made and the efficiency of schools. Unfortunately several aspects of the reform have been discarded in the preparation and implementation process of the new funding system, and this might have a substantial effect on regional development in Estonia.

Full article in Estonian