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In this paper, we discuss a number of key methodological and data issues presented to researchers in determining base funding requirements for Australian schools. In particular, we outline the commonly used 'reference school'‐ based approach to determining a benchmark level of school effectiveness and efficiency, and discuss some of its limitations. In contrast to this method, we present a new approach to estimating base funding requirements that, aided by the use of more granular data, provides a more robust approach to understanding and measuring school effectiveness and efficiency. [ABSTRACT FROM AUTHOR]