In most democracies, the majority of education expenditures is financed by the government. In non-democracies, we observe a wide variation in the mix of public and private funding of education. In addition, countries with high inequality tend to rely more heavily on private schooling. We develop a theory which integrates private decisions on education and fertility with voting on public schooling expenditures. The theory is able to account for the facts mentioned above. Countries with high inequality exhibit more private education expenditures since rich people opt out of the public system. In non-democracies, concentration of political power leads to multiple equilibria in the determination of public education spending.

We argue that inequality and growth are linked through differential fertility and the accumulation of human capital. We build an overlapping-generations model in which dynasties differ in their initial endowment with human capital. Growth, the income distribution, and fertility are endogenous. Due to a quantity-quality tradeoff, families with less human capital decide to have more children and invest less in education. When initial inequality is high, large fertility dif-ferentials lower the growth rate of average human capital, since poor families who invest little in education make up a large fraction of the population in the next generation. A calibrated model shows that this fertility-differential effect is quantitatively important. We also provide empirical evidence to confirm the links between inequality, differential fertility and growth suggested by the model.

We assess the merits of different education systems in a framework that ac-counts for the joint decision problem of parents regarding fertility and educa-tion. Specifically, we compare the implications of a public and a private schooling regime for economic growth and inequality. We find that private schooling leads to higher growth when there is little inequality in human capital endowments across families. In contrast, when inequality is high, public education yields higher growth by reducing fertility differentials. In addition, public schooling leads to income convergence, while private schooling can result in ever increasing inequality. Our analysis highlights the importance of accounting for endogenous fertility differentials when analyzing educational policies.