DEPARTMENT OF ECONOMICS AND FINANCE COLLEGE OF BUSINESS AND ECONOMICS UNIVERSITY OF CANTERBURY CHRISTCHURCH, NEW ZEALAND Evaluating the Weights and Factors Used in the New Zealand School Decile Funding System

In New Zealand, the primary means of addressing the disparities that exist in educational outcomes by socio-economic status of students is the “decile” funding system. The country’s Ministry of Education uses census data on five socio-economic deprivation factors for all households containing school-aged children in the meshblocks of the children attending each public or publicintegrated school in the country. These five deprivation factors are the proportion with household income below an adjusted level, the proportion of adults with no educational qualifications, the proportion of adults in low skill occupations, the proportion of families in crowded households, and the proportion of households receiving a benefit. Each school’s relative (percentile) ranking for each of the five factors is then summed to create on overall socio-economic score. Schools with the highest ten percent of scores (the most disadvantage) are rated as “decile 1” schools, the next highest ten percent are rated “decile 2” schools, and so on. Government school funding is set so that funding per student is highest for the lowest decile schools. We use data from the New Zealand Ministries of Education and Health, the Police, and the 2001 and 2006 censuses to look for whether the decile funding system is using the best weights possible on the five socio-economic characteristics currently in the decile funding formula, and whether other neighbourhood level factors should also be included. Using school fixed effects regressions, we test whether the effectiveness of Ministry of Education funding per student in raising school leaver qualification achievement rates is affected more by some deprivation factors than others under the current system. We also explore whether additional factors such as health, crime, languages spoken, marital status, immigration status, and others have additional explanatory power on qualification achievement rates. We find that under the current practice of equally weighting the five factors, “low skill occupation” raises the effectiveness of government spending on achievement, while “receiving a benefit” reduces it. This suggests that raising the relative weight on “low skill occupation” and lowering the weight on “receiving a benefit” would increase the effectiveness of decile-adjusted school funding on raising achievement rates. Outside the current five factors used, we find that analogous measures of single parent status, rural/secondary urban status, and home ownership also have additional explanatory power regarding variation in school leaver qualification achievement rates. JEL Classifications: H52, I22, I24, I28 Acknowledgements: We wish to thank numerous individuals at government agencies in New Zealand for their help in providing data for this project: at the Ministry of Education Marian Loader, Michael Parkin, Raewyn Glover, and Tony Booth; at Statistics New Zealand Kirsten Nissen, Fiona Wharton, Joy O’Connell, Andrew McClaren and Rosemary Goodyear; for data from the Ministry of Health Christopher Bowie; at the New Zealand Police Gavin Knight, Cameron Dewe, and Obert Cinco. For helpful feedback on our paper we wish to thank Bob Reed, Andrea Menclova, Julie Berry-Cullen, Berk Osler, and the April 28 th seminar participants at the University of Otago Department of Economics, and at the May 30 th seminar participants at the Ministry of Education. We would also like to acknowledge financial support from the contestable research fund of the School of Business and Economics at the University of Canterbury. 1. Department of Economics and Finance, University of Canterbury, Private Bag 4800, Christchurch, 8140, New Zealand. 2. Department of Economics and Finance, University of Canterbury, Private Bag 4800, Christchurch, 8140, New Zealand. Email: [email protected] * Corresponding author: Email: [email protected]. Phone: +64 3 3642308.