This paper reviews public expenditure in Lithuania to identify areas where deeper structural
reforms may be warranted to improve spending efficiency and contain future spending
pressures. The analysis benchmarks spending in Lithuania against other European countries
focusing on spending levels, spending composition, and spending outcomes, and for both
economic and functional spending classifications. While recent expenditure consolidation efforts
have kept public spending among the lowest in Europe, a transition from broad-based measures
to more structural measures will be required: to ensure that low spending levels remain
sustainable, to address poor social outcomes such as high inequality and poor health and
education outcomes, and to efficiently and equitably contain spending pressures arising from an
This paper analyzes drivers of rising per-pupil public education spending, including Baumol’s “cost disease” effect. Higher wages paid to teachers contributed significantly to the increase in per-pupil spending over the past decades. Empirical analyses using a large dataset of advanced and developing economies show that the contribution of Baumol’s effect was much smaller than impled by theory. Rather, the spending inccrease reflects rising wage premiums paid for teachers in excess of market wages, especially in middle-income countries. The strong wage premium effect suggests that institutional characteristics that govern teachers’ wage setting are key determinants of education expenditure.
Hui Jin, La-Bhus Fah Jirasavetakul, and Baoping Shang
This paper, using Moldova as an example, presents a systematic approach to assess the efficiency and equity of public education spending, identify sources of inefficiencies and inequality, and formulate potential reform options. The analytical framework combines international benchmarking with country-specific analysis—such as microeconomic analysis based on household survey data—and can provide important insights into diagnosing and reforming education systems. The analysis finds significant scope to improve both efficiency and equity of the education sector in Moldova. Potential reform measures include further consolidating the oversized school network, reducing overstaffing, and better targeting government subsidies. The current remuneration policy could also be improved to attract high quality teachers and incentivize performance.