Minding the gap between schools and universities

During the 2000s decade, governments in South America reallocated per-student public expenditures from tertiary to basic education, potentially alleviating the economic gap between students in public schools and public universities. To investigate the welfare and macroeconomic effects of such types of policies, we build and calibrate a general equilibrium model using Brazilian data from the beginning of the 2000s. We find that the optimal utilitarian policy allocates per-student public expenditures equally across education stages, benefits almost the entirety of households, delivers significant welfare gains to the poorest families, and cuts back income inequality. We also use our framework to investigate economic differences between Brazil and the United States, and find that differences in the supply of vacancies in public universities is the education policy aspect that, alone, has the highest explanatory power over aggregate earnings and college attendance differences between the two countries.