Public Versus Private Investment and Growth in a Hierarchical Education System

35 Pages Posted: 5 Apr 2010 Last revised: 7 Apr 2010

See all articles by Ioana C. Schiopu

Ioana C. Schiopu

ESADE Ramon Llull University - Department of Economics

Calin Arcalean

ESADE Ramon Llull University - Department of Economics

Date Written: june 2009

Abstract

The paper studies the interaction between public and private spending in a two-stage education framework (K-12 and tertiary education) and their effects on economic growth. We find that an increase in the overall education public spending crowds out the total level of private contributions and increases the share of resources that households devote to K-12 education. For a given public budget, a higher share of K-12 public funding induces higher private education spending overall, of which a larger share goes towards higher education.The model broadly matches data on education finance in the OECD countries. The calibrated parameter values suggest that at both stages public and private inputs are good yet imperfect substitutes, with basic education showing a higher degree of complementarity. We show that the growth maximizing share of public spending devoted to K-12 should be high, irrespective of the size of the public budget. Using the calibrated model to compare the structure of education funding in the EU and the US, we find that, to maximize growth, high tax countries should use more of their public resources in tertiary education relative to low tax countries. This suggests that US efforts to improve K-12 education and the reform of higher education in Europe are consistent with the objective of increased economic growth.

Keywords: Basic and Advanced Education, Private Spending, Public Education Policies, Balanced Growth

JEL Classification: I22, I28, H23, H52

Suggested Citation

Schiopu, Ioana C. and Arcalean, Calin, Public Versus Private Investment and Growth in a Hierarchical Education System (june 2009). Available at SSRN: https://ssrn.com/abstract=1583143 or http://dx.doi.org/10.2139/ssrn.1583143

Ioana C. Schiopu (Contact Author)

ESADE Ramon Llull University - Department of Economics ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

HOME PAGE: http://profesores.esade.edu/ioanaschiopu

Calin Arcalean

ESADE Ramon Llull University - Department of Economics ( email )

Av. de Pedralbes, 60-62
Barcelona, 08034
Spain

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