An Examination of the Interdependence of Public and Private Sector Education Spending in Japan

Abstract

  In Japan, where the birthrate is declining and the workforce population is shrinking, there is a request to increase education investment. Public and private education expenditures are thought to influence each other, and more efficient investment in education requires analysis of the public and private sectors from a unified perspective. Such studies, however, are scarce in Japan. In this paper, we examine the interrelationship between public and private sector education spending by applying VAR analysis using long-term time series data from 1975 to 2018. We classify private sector education spending into three categories based on a range of choice of households. The interrelationship between them was analyzed over a period of about 40 years and separated by the year 2000, when the expansionary trend in education spending in both the public and private began to slow down. Although the results should be interpreted carefully due to the small sample size, it is shown that private education spending may have a positive impact on public education spending before 1999 and a negative impact after 2000.On the other hand, changes in public education spending does not affect private education spending, therefore no crowding-out effect was identified.