The Role of Institutions on the Nexus between Inequality and Public Education

Abstract

Our research revisits and extends the literature that studies the interplay between inequality and education. We gain new insights by accounting for the role of institutional quality. Our findings suggest that the effect of inequality on public education hinges upon institutional quality. Analytically, in societies that have weak institutions, an increase in income inequality can lead to lower quality of public education. This effect takes place via the resources allocated to public education and via the number of individuals participating in the public schooling system. As the quality of institutions improves, this adverse effect of inequality on public schooling can be mitigated, due to lower losses in tax revenue allocated to the system. Our findings can further explain why poor countries that are characterized by a weak tax system and high inequality find it difficult to improve the quality of their public education system.