GDP per capita
Among different factors that have influenced education expenditure, GDP per capita is the key indicator. The government sets the annual budget based on the level of GDP per capita, therefore low levels of GDP per capita result in a higher budget deficit empowered to boost the economy. For instance, (Strawczynski & Zeira, 2003) implied that education spending has risen significantly due to the population growth and increase in per capita income, when conducting a study for Israel for 1962-1998. Using cointegration regressions, a positive relationship was portrayed from the main economic variable, GDP per capita. GDP per capita together with population results in the effect of population being reduced, yet population remained positive.
Adolph Wagner’s theory, The Wagner’s Law, is supported by a key paper (Busemeyer, 2007). The law became popular after previous work from key economists like Adam Smith, stating that over time as the economy develops, public expenditure should increase. The study explored 21 OECD democracies’ relationship between GDP per capita and public education expenditure from 1980-2001. Using different classifications of variables, he found that economic variable (GDP per capita) was positively associated with public education spending. However, during this time there were only 30 OECD members, excluding Israel. Yet, similar results are portrayed to (Strawczynski & Zeira, 2003). (Busemeyer, 2007) also marked that a country’s wellbeing has a substantial impact on education spending, in which a country with a strong economic development has opportunities for education expansions. When including country fixed effects, the law is not stipulated. (Lamartina & Zaghini, 2011) also agreed with The Wagner’s Law and (Busemeyer, 2007), finding a positive correlation between public spending and GDP per capita.
However, exploring differently (Wolf & Zohlnhofer, 2009) used many more OECD countries to determine the factors affecting private education expenditure. The study found GDP per capita to have a similar influence to private education and private tertiary education expenditure. Aiming for greater intuition several models had been conducted in which he notes GDP per capita being associated with lower spending on the given private education expenditure. GDP growth is affected differently in different countries. (Chakrabarti & Joglekar, 2006) explored the relationship between income and education expenditure in states of a developing country, India in this case, using Fixed Effects and Generalised Least Square models. They defined income to be inelastic, finding that consumption expenditure consists of a higher spending ratio in comparison to wages and salaries. It was concluded, that income does have a positive influence on secondary and higher education. Similar results were portrayed for African countries (Akanbi & Schoeman, 2010). The reasons behind such results are due to developing countries having less service...