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

Author

Listed:
  • Debora Di Gioacchino

    (Sapienza University of Rome)

  • Laura Sabani

    (University of Florence)

  • Stefano Usai

    (University of Siena)

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.

Suggested Citation

  • Debora Di Gioacchino & Laura Sabani & Stefano Usai, 2025. "Public Versus Private Investment in Education in a Two Tiers System: The Role of Income Inequality and Intergenerational Persistence in Education," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 11(1), pages 253-284, March.
    • Handle: RePEc:spr:italej:v:11:y:2025:i:1:d:10.1007_s40797-023-00256-0
    DOI: 10.1007/s40797-023-00256-0
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    More about this item

    Keywords

    Education funding; Majority voting; Income inequality; Intergenerational persistence in education; Tertiary education;
    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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