Public education and income inequality

This paper examines the evolution of inequality in an overlapping generations model where each individual's human capital investment depends on quality of schools. We consider an education regime where the quality of schools is a publicly provided input financed by an income tax. We show that the income gap between the rich and the poor may widen even when the quality of public education is the same across all individuals. Thus, in the short run, public education may not be the great equalizer as intended by its proponents, though it is in the long run. We also show that the effect of taxes on inequality is ambiguous.