The Impact of Education Policy on Economic Growth: A Case Study of Ceará’s Performance-Based Financing Model

This thesis investigates whether Ceará’s 2009 tax reform – linking a share of state ICMS transfers to education performance – generated benefits that reach beyond classrooms. It asks three questions: (1) Did the new financing model raise student learning and progression? (2) Did those learning gains translate into stronger labor-market outcomes? (3) Did the policy help reduce poverty and expand broader human capabilities? To answer, this study applies a two-way fixed effects Difference-in-Differences design, comparing Ceará’s municipalities (treatment) with socio-economically similar municipalities in Pernambuco (control), and a slope-analysis regression that track divergences before and after reform implementation. Findings show the reform improved core education indicators and, over time, corresponded with higher secondary and tertiary completion, better wage and employment trajectories, and modest poverty declines relative to the state control. Although health and infrastructure indicators display mixed patterns, the overall evidence suggests that performance-based transfers can set off a chain reaction: stronger early-grade learning, larger human-capital stocks, and ultimately, broader welfare gains. In doing so, Ceará offers a replicable model for resource-constrained regions seeking to align fiscal incentives with real learning and underscores the critical role of sustained research–practice partnerships and multilateral engagement in scaling such innovations.