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The political economy of public spending on education, inequality, and growth

  • Gradstein, Mark
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    Public provision of education has often been perceived as universal and egalitarian, but in reality it is not. Political pressure typically results in incidence bias in favor of the rich. The author argues that the bias in political influence resulting from extreme income inequalities is particularly likely to generate an incidence bias, which we call social exclusion. This may then lead to a feedback mechanism whereby inequality in the incidence of public spending on education breeds higher income inequality, thus generating multiple equilibria: with social exclusion and high inequality; and with social inclusion and relatively low inequality. The author also shows that the latter equilibrium leads to higher long-run growth than the former. An extension of the basic model reveals that spillover effects among members of social groups differentiated by race or ethnicity may reinforce the support for social exclusion.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3162.

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    Date of creation: 01 Nov 2003
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    Handle: RePEc:wbk:wbrwps:3162
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    1. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    2. Benabou, Roland, 1996. "Heterogeneity, Stratification, and Growth: Macroeconomic Implications of Community Structure and School Finance," American Economic Review, American Economic Association, vol. 86(3), pages 584-609, June.
    3. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
    4. Gradstein, Mark & Justman, Moshe, 1997. " Democratic Choice of an Education System: Implications for Growth and Income Distribution," Journal of Economic Growth, Springer, vol. 2(2), pages 169-83, July.
    5. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, vol. 112(478), pages C187-C200, March.
    6. Francisco H.G. Ferreira, 2001. "Education for the masses? The interaction between wealth, educational and political inequalities," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(2), pages 533-552, July.
    7. Birdsall, Nancy & Londono, Juan Luis, 1997. "Asset Inequality Matters: An Assessment of the World Bank's Approach to Poverty Reduction," American Economic Review, American Economic Association, vol. 87(2), pages 32-37, May.
    8. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
    9. Alberto Alesina & Reza Baqir & William Easterly, 1997. "Public Goods and Ethnic Divisions," NBER Working Papers 6009, National Bureau of Economic Research, Inc.
    10. Bertocchi, Graziella & Spagat, Michael, 2004. "The evolution of modern educational systems: Technical vs. general education, distributional conflict, and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 559-582, April.
    11. Francisco RodrĂ­guez, 2004. "Inequality, Redistribution, And Rent-Seeking," Economics and Politics, Wiley Blackwell, vol. 16, pages 287-320, November.
    12. Schwartz, Gerd & Ter-Minassian, Teresa, 2000. " The Distributional Effects of Public Expenditure," Journal of Economic Surveys, Wiley Blackwell, vol. 14(3), pages 337-58, July.
    13. Gradstein, Mark, 2004. "Voting on meritocracy," European Economic Review, Elsevier, vol. 48(4), pages 797-803, August.
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