ABSTRACT

What is the role of income polarization for explaining differentials in public funding of education? To answer this question, we provide a new theoretical modelling for the income distribution that can directly monitor income polarization. It leads to a new income polarization index where the middle class is represented by an interval. We implement this distribution in a political economy model with endogenous fertility and public/private educational choices. We show that when households vote on public schooling expenditures, polarization matters for explaining disparities in public education funding across communities. Using micro-data covering two groups of school districts, we find that both income polarization and income inequality affect public school funding with opposite signs whether there exist a Tax Limitation Expenditure (TLE) or not.