Public investment and higher education inequality

PublicinvestmentandhighereducationinequalityBerardinoCesiyUniversityofRomeTorVergataJanuary26,2006AbstractEmpiricalresultsshowthatchildrenfromhighincomehouseholdsachievehigherlevelsofeducationandaremorelikelytobeenrolledinpostcompulsoryschool.Theoretical…ndingsfailtoanswerclearlywhethergreaterpublicinvestmentinthehighereducationsysteme¤ectivelyde-creasestheinequalitybetweentheeducationalattainmentofrichandpoorchildren.Weshowthatifthechildreceivesamonetarytransferfromhisparentsandallocatesitbetweenprivateconsumptionandinvestmentinprivateadditionaleducation,thenafurtherpublicinvestmentdecreasestheeducationalgap.Thisresultholdsundertheassumptionsofbothsub-stitutabilityandcomplementaritybetweenprivateandpubliceducation.Keywords:Highereducationinequality;Publiceducation;AltruismJELclassi…cation:H31;H52;I21;J24IamdeeplyindebtedtoGianniDeFrajaforallhissupportandguidance.IwouldalsothankAlbertoIozziforthehelpinmakingthispaperpossible.CommentsfromtheparticipantsattheWorkshopCo…nproject2004attheUniversityofMilanL.Bocconiaregratefullyacknowledged.IwishtothankSimeonColeman,KavitaSirichand,RebeccaWindwood,RebeccaDalzell,theaudiencesatUniversityofChieti-PescaraandatUniversityofRomeTorVergatafortheirusefulcomments.ThispaperhasbeenwrittenduringthevisitingperiodattheUniversityofLeicesteryUniversityofRomeTorVergata,FacoltàdiEconomia,viaColumbia2,I-00133,Rome,Italy.e-mail:[e-mail]11IntroductionThedistributionofeducationacrossindividualshasbeenoneofthemoststudiedtopicsduringthelasttwodecades.Empiricalandtheoreticalevidencecon…rmsthatchildrenwhoseparentsarecharacterizedbyhighlevelofincomeandhighhumancapitalaremorelikelytobeenrolledatuniversityandhavebetterhighereducationattainments(see,e.g.,HavemanandWolfe,1995;Woessmann,2004;Blau,1999;Shea,2000;CameronandHeckman,2001;PlugandVijverberg,2001,2003;Taubman,2001;Blanden,GreggandManchin,2003;BlandelandMachin,2004;Callender,2003;ChevalierandLanot,2002;DeFraja,2002;ZanchiandOliveira,2003).Despitethefactthehighereducationinequalityhasbeenlargelycon…rmedinseveralcountries,therearemanydoubtsabouttheexistenceofapolicyforequality.Inparticular,therestillexistconcernsaboutthereale¤ectofapolicyincreasingpublicinvestment.Thispapershowsthatincreasingpublicinvestmentinthehighereducationsystemisane¤ectivepolicytoreducetheeducationalgapbetweenstudentsfromhighandlowincomehouseholds.Wedevelopatheoreticalmodelinwhichtheeducationalattainmentbythechildistobeinterpretedashumancapital:itdependsonpublicschoolingandinvestmentinprivateeducationbyabstract-ingfromparentaleducation,students’abilityandthee¤orttheyexertwhileatschool.Privateeducationincludestimeandprivategoodswhichincreasetheindividualhumancapital;thereforethestudentissupposedtoreceivebothpublicandprivateeducation.Weassumethathouseholdsarecomposedofonealtruisticparentandhischild;theonlywaytheparentcan…nancetheedu-cationalprocessofhischildistoleaveamonetarytransfer.Weconsiderthistransferasasortofbequest.Thedecision-makersareassumedtobetwo:theparentandthechild.Theparentisthe…rstmoveranddecideshowtoallo-catehisincomebetweenthebequestandhisowncurrentconsumption.Inthesuccessiveperiodthechildreceivespubliceducationandallocateshisbequestbetweenconsumptiongoodandinvestmentinprivateeducation.Theassumptionthattheinvestmentinprivateeducationisdecidedbythechilddi¤erentiatesourpaperfromthepreviousliterature(BeckerandTomes1986andNordblom2003).Weareawarethatamodelinwhichtheprivateinvestmentischosenbytheparentisappropriateforthecompulsoryschoolbutitdoesnotproperlyrepresenttheeducationalprocessworkingattheuniversitylevel.Theparentsareoftennotableto…gureoutthekindofeducationalsupportthechildattendinguniversityreallyneedstoimprovehislevelofeducation.Thisdi¢cultycouldarisefromtheweakinteractionbetweenparentsandacademicsta¤(asprofessors)characterizingtheuniversitysystem.Insomecountries(suchasItalyandtheUK)thecompulsoryschoolguaranteesfrequentmeetingsbetweenparentsandteachers,butthesedonottakeplaceoncechildrengotouniversity.Furthermore,thechild’sagealsomatters.Thestudentattendingcompulsoryschoolisquiteyoungandneedstheguidanceofitsparents,whilethestudentattendinguniversityisusuallyolderandthereforeabletochoosebyhimselfthetypeofprivateeducationalinvestmentheneeds.Inthelattercase,2theroleoftheparentisjusttodecidetheamountoftransferaccordingtotheownliquiditypossibilityNordblom(2003)showsthatanincreaseinpublicschoolingisnotane¤ec-tivepolicytodecreasetheinequalitybetweentheeducationofrichandpoorstudents.Shedevelopsamodelinwhichhouseholdsarecomposedofonealtru-isticparentandhischild.Theeducationlevelofthechildpositivelydependsonpublicschooling,parentalinvestmentandparentaleducation(interpretedasaccumulatedofhumancapital).Parentalinvestmentincludesexpenditureinprivateeducationofthechild(asadditionalbocks,computers,languagecoursesandprivateteaching)andamonetarytransfer(bequest).Inthismodel,publicandprivateeducationareassumedtobecomplements:anincreaseinpub-licinvestmentraisesthemarginalproductivityofparentalprivateinvestment.Nordblomde…nestherichandthepoorhous