Time-series evidence for a number of European countries shows that rising educational expenditures have not improved student performance. We speculate that the apparent decline in European schooling productivity reflects inefficient schooling institutions. International cross-section evidence suggests that the performance of students in many European countries could be vastly improved by changing the institutions which govern the incentives of students, teachers and the school administration. For instance, we find that centralised exams, school autonomy in personnel decisions, and competition from private schools boost student performance. Hence educational policies in Europe should focus on institutional reform rather than on additional spending. Erich Gundlach heads a research group at the Kiel Institute of World Economics and lectures at the University of the Federal Armed Forces in Hamburg. His main fields of interest are the empirics of growth and the economics of education. He has also been a consultant for UNIDO and the World Bank. He holds degrees in economics from the Christian Albrechts University, Kiel, and from the University of the Federal Armed Forces in Hamburg. Ludger Wößmann is a researcher at the Kiel Institute of World Economics, where he specialises in the efficiency of schooling systems and the effect of human capital on economic growth. He hold
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