Abstract
Using data from the China Family Panel Studies (CFPS), we developed an educational production function to examine how households with different income levels and parental human capital respond to changes in public spending. Our results suggest that there is a significant complementary effect between household inputs of time and money and public investments in the educational process. However, the results are heterogeneous in terms of different income levels. Rich families have more incentives to invest in their children, suggesting a crowd-in effect of public resources. In contrast, public spending crowds out private inputs for poor families, who care more about their own well-being. Moreover, we show that educational investments in parents have spill-over effects on their children, but the degrees of influence are different for the poor and the rich.
Highlights
Many economists have paid much attention to the economic growth theory since Adam Smith explained the nature and factors of national wealth
As can be seen in the first line, the estimate of public education spending is positive and significant at the 1% level; with an increase of CNY 100 on public spending, household spending on schooling, private tutoring, and total education increased by CNY 88, CNY 117, and CNY 116, respectively
This finding contrasts with the results of recent research that showed that public spending on education crowds out the total private contributions [20]
Summary
Many economists have paid much attention to the economic growth theory since Adam Smith explained the nature and factors of national wealth. Children who live in families with higher-educated parents form good habits, have better chances of receiving a better education, and have higher grades in school Another important factor is the household input—consisting of time and money—and the role it plays in the children’s performance. We began with an educational production function that includes household spending and parental effort as inputs for children’s human capital, examining the impact of household income on preferences for public education and other economic factors. Gamlath and Lahiri [11] developed an overlapping generation model to show that there is strong substitutability between public education and private expenditures They mentioned that it has better economic outcomes because families could spend more on consumption and investment.
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