Private Resources in Educational Finance and Equality Implications: Evidence from Peru

Governments of most developing countries face tight fiscal budgets that do not allow them to expand access to education, increase equality of educational opportunities, and improve the quality of the education delivered as they would like. The international lending community has taken sides on this issue. Torres (2003), in a critical review of the World Bank’s involvement in education, summarizes the international credit agency’s position as follows:

The current systems of finance and management are frequently not well suited to meeting these challenges. Public spending on education is too often inefficient and inequitable. In view of the competition for and pressure on public funds, new sources of financing are needed (p. 301).

Given the fiscal constraints, and following the guidance of the international lending community, developing countries have been trying to find alternative methods for financing the provision and expansion of education. These alternative sources of educational finance can include the reallocation of public spending from other publicly funded activities to education, the generation of new tax revenues to be destined to education, and the reliance on private funds to supplement public spending on education (World Bank, 1995). This chapter focuses on the last source of financing education: The reliance on private funds to finance the provision of education.