The Optimal Mix of Quantity and Quality of Education

We study the roles of quantity and quality of public education in an OLG model in which the working adult cares for her child's education as well as for her elderly parent's consumption, and spends time providing assistance to her parent. A more educated agent has more ability, hence she earns more and provides better assistance. First, we identify the optimal quality-quantity mix that a parent chooses as a function of policy (school fees, income tax, pension). Then, we discuss in a steady-state framework the socially efficient determination of the policy tools. We find that school fees tend to reduce education quantity by boosting working time for both kids and adults, and generally favour the generation of working adults (even though they are the ones paying them), possibly at the expense of a negative impact on the well-being of the young and of the elderly. The opposite is true if education is mostly financed through the income tax. Overall quality is only moderately sensitive to changes in the policy mix.