How Do Different Households Respond to Public Education Spending?

Abstract

Using data from the China Family Panel Studies (CFPS), we developed an educational production function to examine how households with different income levels and parental human capital respond to changes in public spending. Our results suggest that there is a significant complementary effect between household inputs of time and money and public investments in the educational process. However, the results are heterogeneous in terms of different income levels. Rich families have more incentives to invest in their children, suggesting a crowd-in effect of public resources. In contrast, public spending crowds out private inputs for poor families, who care more about their own well-being. Moreover, we show that educational investments in parents have spill-over effects on their children, but the degrees of influence are different for the poor and the rich.