Public Education And Income Differences

In the last two decades while China's rapid economic growth greatly enhanced its people's level of income as well as their living standards, the nation's income inequality is increasing. An unfair income distribution would not only threaten social stability but impede economic development. So. how to manage income inequality would be critical for a country to achieve sustainable growth. The governments usually adopt several fiscal policies, such as tax, pension, social security and payment transfer to alter income distribution. These redistributive policies can slow down the enlargement of income gap, but they cannot improve low-income family's competence in the labor market. Compared with these options I believe public education would be a more effective way to decrease income inequality. Free public education would save a considerable amount of educational expenditure for poor parents as well as improve their children's human capital. Thus when a poor child enters the labor market he can earn a higher income to reduce the gap between him and his rich counterpart.How public education would affect income distribution and how effective is it as a reasonable option to decrease income inequality? This paper carries out detailed investigation on these problems in the framework of endogenous growth theory. The theoretical models and numeric simulation has made some interesting discoveries.First this paper presents an over-lapping generation model to study the interaction among human capital accumulation, physical capital accumulation and income distribution. It shows that income inequality hinders economic growth via human capital formation and the ratio of physical to human capital. We find that decreasing inequality will encourage human capital accumulation and enhance growth rate, which provides an opportunity for poor country to catch up its richer counterparts. This result justifies governments' efforts to promote social equality.After introducing public education into the model the paper sets out to compare the economic performance in private educational system and public educational system. We find that public educational system achieves a higher educational investment level than private educational system and reduce income inequality more rapidly than private educational system. Compared with private educational system, public educational system can enhance human capital accumulation, increase growth rate as well as realize an more equal income distribution.The last model in this paper attempts to understand how the change of public spending on education would affect income distribution. Numeric simulation reveals that increased spending on public education can reduce income inequality if there is no budget constraint. If budget constraint exists public education's effect on income distribution depends on the size of government's redistributive funds. When the size is relatively small, increased spending on public education would reduce income inequality. When the size is relatively large, it's necessary to keep a balance between public education expenditure and the other redistributive project (social security transfer in this paper); otherwise excessive spending on public education would increase income inequality. The result indicates that public education is a more effective way to reduce income inequality compared with other alternative options.This paper also examines the scale and structure of China's public education expenditure. Compared with other nations we find that China's public investment in education is inadequate and unbalanced. Then I explain the shortage of China's public education expenditure from the perspective of bureaucracy economy, interest group and rent seeking. In the last part of this paper I find that China's public spending on education increase income inequality rather than reduce it. This results from the unfair allocation of public education spending in China. Educational inequality obstructs public education's role in reducing income inequality. So education equality must be the first objective in public education expenditure.