Beyond Budget Size: Institutional Quality and Inequality as Determinants of Literacy Outcomes in Honduras, 2012–2023

Honduras allocates a substantial share of GDP to public education, yet it continues to record weak human capital outcomes relative to its Central American neighbors. This study tests whether education-spending volume, or instead institutional quality and income inequality, better explains literacy outcomes in Honduras. Using annual data for 2012–2023, the period for which Honduras reports complete education-spending data to the World Bank, we estimate four parsimonious OLS specifications with Newey–West HAC standard errors. Regressors include education spending (% of GDP), government effectiveness, the Gini index, and log GDP per capita. Across all four specifications, education spending is not a robust predictor of adult literacy: it is non-significant in three of the four models (p > 0.10) and reaches conventional significance only in Model 4 (β = 0.606, p < 0.05), a result that is itself specification-dependent given the sign instability of the education-spending coefficient across models. Government effectiveness is positive and significant wherever included (β = 6.64 to 7.61, p < 0.05), and the Gini index is negative and significant wherever included (β = −0.38 to −0.54, p < 0.01), together explaining up to 74% of the variance in adult literacy (Adjusted R2 = 0.740) with only twelve annual observations. These findings indicate that institutional quality and income inequality, rather than public spending levels, are the binding constraints on literacy outcomes in Honduras during the period examined. Increasing education budgets without parallel governance reform and redistribution is unlikely, on this evidence, to translate into improved literacy.