Expected Long-Term Budgetary Benefits to Roma Education in Bulgaria
In June 2007 IME, together with Georgi Angelov, produced an analysis of expected long-term budgetary benefits to Roma education in Bulgaria. The analysis was sponsored by the Roma Education Fund (REF) in Hungary.
By budget benefits we envisage the direct financial benefits to the education to the national budget. The basic perception is that investing extra money into Roma education would pay off even in fiscal terms. In order to be successful, investments should take place in early childhood. Successful investments are also expensive, but if it is done the right way, such investments compensate the costs in terms of extra tax benefits in the future. This study looks at the expected budgetary benefits of a successful investment. However, it does not deal with how to achieve success.
When considering the results of this study one should bear in mind that investing into one child education will have long-term benefits not only for the child itself, but to the entire society. We anticipate the benefits to the society from such an investment in a narrow sense – the fiscal benefits to the budget in the form of more payments (social security contributions, personal income tax, indirect taxes) and less transfers from the budget to citizens (welfare payments, public employment programs, unemployment benefits and costs of incarceration). The overall effect of investment in education is expected to be net budgetary benefits. These budgetary benefits are equivalent to return of investment in education and in such way can be viewed as return similar to various financial investments. Respectively, the idea is to consider the government as an investor that anticipates returns from an investment project called Investing in Roma children education.
We estimate the net budget benefit from investment in education that enables young Roma to complete basic, secondary and higher education. We assume that without the investment she/he would complete 4 grades or 8 grades with certain probability. Benefits of the secondary education are the weighted average of the benefits of secondary and higher education, where the weights are the probability that young Roma who has a basic education gets a secondary and then higher education. After that, we estimate the probability that a person with given level of education and given age is in the particular state of the labor market. Our study considers five statuses on the labor market: full time employed, registered unemployed, registered welfare recipient, registered participant in subsidized employment, and prisoner.
The analysis is based on national estimates adjusted for Roma differences because of lack of enough data for the Roma population characteristics in Bulgaria. The latest census (2001) gives limited scope of data concerning Roma community. Therefore, we use the available data and try to estimate the missing figures by adjusting national data. For the estimation of Roma figures we used the fraction of Roma in specific state, the educational distribution and the fraction of Roma in population.
According to the calculations, the more education, the more a person contributes to the government budget. If we take into account the expected contributions for a representative Roma and subtract the government investment in his/her education, the net benefits from education amount to more than EUR 82 thousand (present value, 2007 prices). The benefits are almost twice as higher for Roma achieving higher education and a more than a third lower for Roma having secondary education only. Still, in both cases the investment in Roma education yields significant long-term benefits for the national budget.
Our analysis shows that benefits for the budget would come from increased government revenues from personal income tax and social security contributions on earned income and from indirect taxes on consumption.
Our check of the sensitiveness of results to the key parameters (discount rate, the growth rate of nominal education spending, nominal wage growth, and Roma employment and wage adjustment ratios) shows that the investment in Roma education should be successful. Fiscal benefits are more sensitive to the change of the discount rate. But even the worst case when the discount rate is 8% leads to over EUR 36 thousand net gains for the state budget.
If we combine the change in the determinants in the worst scenario when the discount rate is 10%, the growth rate of wages is only 4% and the growth rate of educational spending is 12%, then there is still small net positive benefit for the budget. This “stress” test shows that the investment would be successful even in unfavorable environment in the country.
The present value of the net budget benefits from education in one Roma child is more than EUR 82 thousand. For example, if investment is made in the education of 10 000 Roma children now, this would lead to net budget benefits of more than EUR 822 million. Respectfully, if investment in the education of 30 000 Roma children is made now, it would lead to more than EUR 2.468 billion net budget benefits.
