Why does education expenditure differ across countries? The role of income inequality, human capital and the inclusiveness of education systems

Debora Di Gioacchino, Laura Sabani and Stefano Usai

No 236, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: This paper provides a simple model of hierarchical education to study the political determinants of the public education budget and its allocation between different stages of education (basic education and advanced education). The model integrates private education decisions by allowing parents, who are differentiated according to income and human capital, to opt out of the public system and enrol their offspring at private universities. Majority voting decides the size of the budget allocated to education and the expenditure composition. The model exhibits a potential for multiple equilibria and 'low education' traps. Income inequality, the distribution of the adult population's human capital and the inclusiveness of the education system play a fundamental role in deciding the equilibrium public education budget and its allocation between different tiers of education. The main predictions of the theory are broadly consistent with cross-country evidence collected for OECD countries and help to explain why some OECD countries, such as Italy, seem to remain stuck in a 'low education' equilibrium.

Keywords: Education Funding; Political Economy; Majority Voting; Opting Out; Income Inequality; Redistribution (search for similar items in EconPapers)
JEL-codes: H23 H26 H42 H52 I28 (search for similar items in EconPapers)
Pages: 56
Date: 2023-02
New Economics Papers: this item is included in nep-edu and nep-pbe
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