4 - Education policy: private versus public schools

Summary

The existing literature on the respective merits of public and private education has relied mostly on models with exogenous fertility. The first paper in this field is Glomm and Ravikumar (1992), which contrasts the effects of public and private schooling systems on growth and inequality. In a country with little inequality, a fiscal externality created by public schooling leads to lower growth under public schooling than under private schooling. But, in the long run, public education is better for equality. This is not a very surprising result: as it redistributes resources through school funding, the public regime promotes equality, but introduces a fiscal externality, which hampers growth.

The empirical implications of this result are that one should observe that countries which rely the most on public schools should develop a more equal distribution of income but grow at a slower pace. It is, however, not easy to compare countries which are usually very different along so many dimensions. One way to limit the possible heterogeneity across countries is to look at states or provinces of the same country. For example, in India, there is a wide variation in the share of students going to private schools. Figures 4.1 and 4.2 correlate this share with income inequality and income growth. The correlation with inequality is of the expected sign, although it is not very strong (coefficient of correlation is 0.24).