Composition of Public Education Expenditures and Human Capital Accumulation

This paper provides a simple theory to study how the allocation of public funds between primary and higher education affects human cap- ital accumulation. The allocation is endogenously determined through majority voting. Public funding for higher education is not supported when a majority is poor. In some cases, higher education starts to be realized as a majority of individuals accumulate enough human capital through primary edu- cation. Although the emergence of higher education can accelerate aggregate human capital accumulation, it widens income inequality because the very poor are excluded from higher ed- ucation and the declined budget share for primary education decreases its quality.