Public Education and Capital Accumulation

I study an overlapping generations model where physical and human capitals are inputs of production that can be accumulated by witholding resources from current consumption. Human capital is the output of a schooling system which can be financed either by private expenditures or by taxes on current income or by a combination of both. In a political equilibrium with majority voting, public school financing appears as an instrument to solve a "free rider problem". By improving the skills of next period's workers it increases the expected return on capital, something which cannot be achieved by means of private school only. Public schools turn out to be an instrument for intergenerational income redistribution and they may be preferred to private schools just for this motive.