Public Versus Private Investment in Education in a Two Tiers System: The Role of Income Inequality and Intergenerational Persistence in Education

Debora Di Gioacchino, Laura Sabani and Stefano Usai
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Laura Sabani: University of Florence
Stefano Usai: University of Siena

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2025, vol. 11, issue 1, No 9, 253-284

Abstract: Abstract This paper provides a simple political economy model of hierarchical education to study the endogenous determination of the public education budget and its allocation between different tiers of education (basic and advanced). 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 and the intergenerational persistence of educational attainments play a fundamental role in deciding the equilibrium. The main predictions of the theory are broadly consistent with descriptive cross-country evidence collected for 43 high-middle income countries.

Keywords: Education funding; Majority voting; Income inequality; Intergenerational persistence in education; Tertiary education (search for similar items in EconPapers)
JEL-codes: H23 H26 H42 H52 I28 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40797-023-00256-0

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