In this chapter, we develop an analytically tractable framework that integrates political determination of the quality of public schools with private education and fertility decisions. In the previous chapter, the economy was characterized either by private education or by public education. We here provide a set-up where both systems coexist: parents may choose between sending their children to tax-financed public schools and, alternatively, opting out of the public system and providing private education to their children. They also determine their number of children as a function of their income and of the expected quality of schools.

The motivation for investigating the role of public education in an integrated framework comes from the observation that education is one of the main areas of government intervention. Indeed, rather than merely regulating the private sector, the governments of nearly all countries act as major providers of primary and secondary education to their citizens. At the same time, the government is generally not the only provider of education; education systems often display a juxtaposition of public and privately funded institutions. Table 5.1 shows that the degree of private involvement in the provision of education varies a great deal across countries.

Recently, the OECD Program for International Student Assessment (PISA), which assesses the knowledge and skills of 15-year-old students in a crosssection of countries, has sparked an intense debate on the merits of different education systems.