Government expenditures on primary, secondary, and tertiary education

Most underdeveloped countries spend much more on tertiary education per student versus primary and secondary education per student, while in developed countries this ratio is much smaller. To examine this issue I present an overlapping generations model with heterogeneous agents. Heterogeneity arises from differential innate ability. Agents choose how many years of school to attend. The government also provides different amounts of funding for primary plus secondary schooling and tertiary schooling. The government allows only the top percentile of students graduating from secondary education to participate in tertiary education. I find that insufficient funding for primary and secondary school hurts every individual in the economy as well as decreasing output and increasing inequality, while excessive funding for primary plus secondary school per pupil leads to a huge tax burden, decreasing the welfare of all individuals.