When Does Government Debt Crowd Out Investment?

Nora Traum and Shu-Chun Yang

No 2010-006, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: We investigate the relationship between inequality and education funding in a model of probabilistic voting over public education spending where the private option is available. A change in inequality can have opposite effects at different income levels: higher inequality decreases public spending per student and increases enrollment in public schools in poor economies, while the opposite holds in the rich ones. A change in the tax base can also have non-monotonic effects. We also study the implications of different voting participation across income groups. The predictions of the model are supported by U.S. school district-level data.

Pages: 38 pages
Date: 2010-05
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: When Does Government Debt Crowd Out Investment? (2015)
Working Paper: When Does Government Debt Crowd Out Investment? (2011)
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