Technical Report Inequality and Education Choice

Ono, Tetsuo  ,  Uchida, Yuki

16-17pp.1 - 41 , 2016-05 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
This study presents a two-class, overlapping-generations model with human capital accumulation and the choice to opt out of public education. The model demonstrates the mutual interaction between inequality and education choice and shows that the interaction leads to two, locally stable steady-state equilibria. The existence of multiple stable equilibria implies a negative correlation between inequality and enrollment in public education, which is consistent with evidence from OECD countries. This study also presents a welfare analysis using data from OECD countries and shows that introducing a compulsory public education system leaves the first generation worse off, though improves welfare for future generations of the lower-class individuals. The results also suggest that the two equilibria are not Pareto-ranked.

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