Staff Report 185

On the Political Economy of Education Subsidies

Raquel Fernandez
Richard Rogerson

Published December 1, 1994

Standard models of public education provision predict an implicit transfer of resources from higher income individuals toward lower income individuals. Many studies have documented that public higher education involves a transfer in the reverse direction. We show that this pattern of redistribution is an equilibrium outcome in a model in which education is only partially publicly provided and individuals vote over the extent to which it is subsidized. We show that increased inequality in the income distribution makes this outcome more likely and that the efficiency implications of this exclusion depend on the wealth of the economy.

Published In: Review of Economic Studies (Vol. 62, No. 2, April 1995, pp. 249-262)

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