Preferences for Public Education Spending in Hierarchical Education Systems: Theory and Empirical Evidence from OECD Countries

This paper analyses the factors affecting preferences for public education spending, focusing on household income and other individuals’ characteristics as well as on institutional features. Standard redistributive arguments à la Meltzer and Richard (1981) suggest that the impact of household income on preferences should be negative since richer families are likely to oppose the redistributive effect of public funding. However, the empirical evidence does not seem to confirm this prediction. To shed some light on this issue, our proposed interpretative key hinges on the hierarchical structure of the education system. To this purpose, we set up a model in which agents are heterogeneous in terms of income and education and human capital is produced in a two-tier education system. We show that individual preferences for public education spending are affected by household income and by variables related to the socioeconomic context, such as income inequality and social inclusiveness of the education system, which determine the ultimate redistributive effect of public spending. We are able to test some of the predictions of our model using individuals’ data from ISSP (2006 wave). The econometric analysis points out that household income is, unambiguously, a negative predictor of preferences when considering openly redistributive education expenses. Differently, when considering general schooling expenses, the intensity and even the direction of the income effect is affected by income inequality and by the social inclusiveness of the education system. We also assess the presence of significant residual variability in the income coefficient, due to unobserved factors, which for the most part is due to the individual within-country rather than to the cross-country level.