Inequality and education choice

Abstract

This study presents a two-class, successive 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 individuals in a lower class. The results also suggest that the two equilibria are not Pareto-ranked.