Inequality, Growth and the Politics of Education and Redistribution

This paper analyzes the political economy of public education and redistribution in an overlapping-generation model of a two-class society in which growth is driven by the accumulation of human capital. The levels of public education and lump- sum financial transfers are determined by voting, while private education which supplements public education is purchased individually. The model, which includes two-dimensional voting, demonstrates multiple steady-state political equilibria. One is an equilibrium with a high share of public education in government expenditure; the other is an equilibrium with a high share of lump-sum transfers. Numerical analysis shows empirically plausible result of growth, inequality and the composition of redistributive expenditures.