Inequality, opting-out and public education funding

We investigate the effect of inequality on the political support for public education funding in a model of endogenous fertility and school choice. In contrast to recent literature we show that when household income heterogeneity is consistent with the skewness of empirical income distributions, inequality can drive education spending in opposite directions in poor and rich economies. A mean preserving spread increases tax rates and public school enrollment, but decreases public spending per student in low income economies, while it has opposite effects at high income levels. An increase in the average income level can also have non-monotonic effects. JEL Codes: D72, H42, I21, I22.