Korea faces inevitable policy shifts due to prolonged demographic declines, affecting not just the primary and secondary school age populations but the overall population as well. This report tackles these shifts by exploring issues to formulate more effective and efficient reform strategies for the administration and finance of education in a shrinking society. It emphasizes the importance of strategically allocating the national budget across various sectors to optimally use limited resources. This requires a national interest perspective, moving beyond sector-specific stakeholders’ gains and losses, and seeking alternatives. The report argues for the necessity of system and policy reform, acknowledging the challenge it poses to entrenched interests but highlighting its importance in addressing our country's challenges through flexible budgeting and efficient execution.

We critique the current method of the total budget calculation for primary and secondary education, which is too rigidly tied to tax revenues, and call for significant reforms in funding allocation to schools. They propose a new method that boosts school autonomy and accountability, allowing educational outcomes to play a role in budget decisions. Moreover, they suggest that operational and project funding managed by provincial education offices should be clearly separated from direct school funding, advocating for rigorous performance evaluations to enhance fiscal efficiency in education. The report offers various recommendations for reforming education finance, aiming to improve both the quality of education and the efficiency of its financing, hoping these policy suggestions will be actively considered.

Chapter 2 evaluates the appropriateness of giving precedence to the primary and secondary education budget over other sectors is evaluated, particularly as public spending on education begins to exceed the OECD average. Through international comparisons and empirical analysis of various factors like the school-age population, GDP per capita, and data from the Programme for International Student Assessment (PISA), it investigates these elements' impact on educational budgeting, priorities, and student outcomes, offering policy recommendations for more effective and efficient resource use.

Chapter 3 consists of three parts. First, we analyze the impacts of changing the method of electing the superintendent of education from election by the school management committee to direct election by residents, focusing on students' educational achievement and health using a difference-in-differences method. Second, we examine the impact of per-pupil public education expenditure on academic achievement in South Korea, employing the method of instrumental variables. Third, we assess the impact of per-pupil public education expenditure on academic achievement in the United States using a state-fixed effects model.

The estimation results indicate that in regions where the direct election of superintendents was first implemented, there was a decrease in the proportion of students scoring in the top tier of the College Scholastic Ability Test, and an increase in the proportion of students in the middle and lower tiers, compared to regions where the direct election had not yet been implemented. No significant changes are observed in students’ health. In South Korea, an increase in per-student expenditure positively affects the academic achievement of elementary school students, although the magnitude of this effect is not substantial. No significant, positive effects are found for middle and high school students. In the United States, there is no significant relationship between per-student educational expenditure by state and the academic achievement of students in 4th, 8th, and 12th grades.

The results suggest a need to strengthen accountability for a range of student outcomes among superintendents of education. They also imply a necessity to adjust how education budgets are allocated in response to the declining school-age population and to enhance the allocative efficiency of these budgets.

In Chapter 4, we study the effect of the current institutional features of the education administration and finance system on the structure of local education finance. Specifically, we focus on changes in school budgets when the overall volume of educational finance increases beyond expectations. For recent years, the local education grant has increased unexpectedly, as the national tax revenue increased and large volumes of supplementary budgets were added due to Covid-19. We analyze how this unexpectedly large surplus of educational funding was distributed and executed. In addition, we investigate how the provincial superintendents, elected at the local election, distributed targeted funding to schools.

Our analysis of the budget and balance data of the school and provincial education offices reveals a behavioral response of the education offices to the current institutional characteristics of educational administration and finance. As the total volume of education funding is uncertain at the beginning of the financial year, they first underestimate the total revenue and expend additional revenue through the supplementary budget. A targeted funding, which the superintendent distributes to the schools autonomously, is a good way to expend such extra revenue. Regression analysis using targeted funding distribution data and local election data shows that superintendents distributed a higher amount of funding per school population to schools in a district where the percentage of votes for the superintendent in the last local election was relatively higher. This implies that the distribution of targeted funding is affected by the political interests faced by the superintendent under the current system of the educational administration and finance system.

Chapter 5 discusses how the main issue with the current funding system for education stems from the provincial education offices' lack of incentive to improve financial efficiency, rooted in a system overly reliant on national and local tax revenues without accountability for fund raising. It suggests the need to revise the budget calculation method due to the projected overabundance of funds, following an analysis that shows maintaining 2022 levels of educational infrastructure could lead to increased expenditure per student but not significantly higher total costs. In addition, it is proposed that a hypothetical criteria for integrating schools to enhance financial efficiency. Lastly, it advocates for abolishing the tax revenue-linked budgeting method and introducing a new support system with ten structural elements aimed at improving educational outcomes and addressing regional decline. The report calls for a unified governance structure for education and further research on the necessity of the elected provincial superintendent system.

Preface
Executive Summary

Chapter 1 Introduction (Hagsoo Kim)
　References

Chapter 2 International Comparison of Public Education Expenditure Levels and School Integration in K-12 (Hagsoo Kim)
　Chapter 1 Introduction
　Section 2 International Comparisons of Total Public Education Expenditure Levels in Korea
　Section 3 International Comparisons of K-12 Public Education Expenditure Levels by School Age Population and Income Level
　Section 4 Empirical Analysis of Factors Determining K-12(including Kindergartens) Education Finance Indicators and Academic Performance
　Section 5 Foreign Cases of K-12 School Consolidation in Response to Declining School-Age Population
　Section 6 Implications
　References
　Appendix

Chapter 3 The Effects of Educational Governance and Educational Finance Level on Educational Performance (Taehoon Kim)
　Section 1 Introduction
　Section 2 The Effects of Educational Governance on Student Academic Performance in South Korea
　Section 3 The Effects of Per-Pupil Education Expenditure on Student Academic Performance in South Korea
　Section 4 The Effects of Per-Pupil Education Expenditure on Students' Academic Performance in the United States
　Section 5 Implications
　References
　Appendix

Chapter 4 The Effects of Current Education Administration and Finance Systems on Local Education Finance Structures (Seon Koh)
　Section 1 Introduction
　Section 2 Administrative and Financial Structure of Primary and Secondary Education and School-level Educational Finance
　Section 3 Changes in the Overall Volume of Educational Finance and Financial Activities of Schools and Offices of Education
　Section 4 Political Economic Analysis of the Allocation of Purposeful Project Costs
　Section 5 Summary and Policy Implications
　References

Chapter 5 Efficient Education Finance in a Population-Declining Society (Hagsoo Kim)
　Chapter 1 Introduction
　Section 2 Future Educational Conditions
　Section 3 Current and Future K-12 Education Costs and Methods for Efficiency
　Section 4 Reorganization of the Central Government's K-12 Education Financing System
　Section 5 Implications
　References
　Appendix

ABSTRACT