The governance threshold effect on the relationship between public education financing and income inequality

In this study, we use a structural threshold regression methodology STR developed by Kourtellos et al,. 2015 in order to determine the heterogeneous effects of public education expenditure on the income inequality at different levels of institutional quality. Our main objective is to give reason to the mixed result between public spending on education and inequality largely obtained by the empirical analysis and to confirm the nonlinear character of this relationship. We obtain strong evidence that public education expenditure improves income distribution only if the country is above the threshold level of governance otherwise the effect is negative.