The Korean Journal of Economic Studies
Optimal Funding Policy for Public Education and Choice of Fertility
Bong-Ju Kim (National Assembly Research Service)Year 2015Vol. 63No. 4
AbstractThis paper examines funding policies for education in a model with skilledand unskilled workers. We investigate how changes in the income gapbetween them affect optimal financing. The results are as follows: First, for avery large income gap, pure public financing is optimal in a uniquesteady-state. Second, for a large income gap, we find out a case in which nosteady-state exists and partial private financing is optimal. Third, for a smallincome gap, partial private financing is optimal in multiple steady-states.Finally, for a very small income gap, partial private financing is optimal in aunique steady-state. The reason for these results is that pure public financingimproves equity but causes inefficient fertility choice. Thus, from this trade-offbetween equity and efficiency, pure public financing is optimal when inequalityis very high.