Growth and inequality under different hierarchical education regimes

Abstract

We study the impacts of different educational regimes on growth and income inequality using a two-stage human capital formation model with heterogeneous agents. Both at the basic and advanced educational stages, the school system can be either public or private. In contrast to other related overlapping generations models, due consideration is given to time constraints and to the mensuration of time investments in education per person. Our results suggest that the source of basic, rather than advanced, education expenditures is central to the discussion of growth vs. inequality reduction speed. In terms of long-term growth (inequality reduction), it would be better for basic education to be private (public), regardless of the advanced stage being private or public. However, in the short run, if the basal degree of persistence of inequality is low, then a public basic education system could be justified also on the grounds of growth concerns.