Abstract
A recent theoretical and empirical literature has recognized the importance of growth-promoting policies that not only take into account the level but also the distribution of human capital. This paper studies the link between public spending on education and human capital inequality. I build a model of human capital formation where government intervention in education is justi…ed by the existence of credit market imperfections. The framework provides conditions on the level of development of an economy under which the educational policies are elitist, that is increase the spread between the educational achievement of the bright and less bright individuals. The theoretical predictions of the model are tested using the measures of educational inequality recently constructed for both developed and developing countries by Castello and Domenech (2002). The paper also presents estimates of
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