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

Author

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  • Debora Di Gioacchino
  • Laura Sabani
  • Stefano Usai

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.

Suggested Citation

  • Debora Di Gioacchino & Laura Sabani & Stefano Usai, 2023. "Why does education expenditure differ across countries? The role of income inequality, human capital and the inclusiveness of education systems," Working Papers in Public Economics 236, University of Rome La Sapienza, Department of Economics and Law.
    • Handle: RePEc:sap:wpaper:wp236
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    References listed on IDEAS

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    More about this item

    Keywords

    Education Funding; Political Economy; Majority Voting; Opting Out; Income Inequality; Redistribution;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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