The Political Economy of Early and College Education - Can Voting Bend the Great Gatsby Curve?

Christopher Rauh

No 82, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: High earnings inequality goes hand in hand with low intergenerational earnings mobility across developed countries. Public expenditure on education, which could mitigate this relationship, is negatively correlated with inequality across countries. In an overlapping generations model, which I calibrate to the US, early and college education policies are endogenized via probabilistic voting. I investigate two channels, a technological and a political explanation. First, considering differences across countries in tertiary education characteristics account for 65% of the differences in inequality. The higher college premium in the US translates into increased incentives to invest in early education due to dynamic complementarities, and also increases the gap between parents' ability to finance education. Second, I exploit cross-country variations in the bias in voter turnout towards the educated. Thereby, I replicate the negative relation between inequality and public education expenditure and account for nearly one-quarter of the differences in inequality and mobility. For the US, I find that compulsory voting could foster mobility, whereas the effect on pre-tax inequality is low.

Date: 2015
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-edu and nep-pol
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