INFRASTRUCTURE,PUBLIC EDUCATION AND GROWTH WITH CONGESTION COSTS

This paper studies the implications of education quality for the optimal allocation of public expenditure in a simple endogenous growth model with mandatory schooling and infrastructure spillovers. Education quality is inversely related to the degree of congestion in schools, which is itself measured in two ways: the proportions of teachers and students in the population, and the ratio of government spending on education to teaching capacity. The balanced‐growth path is derived and the transitional dynamics associated with an increase in the degree of congestion are analysed. The growth‐maximizing share of government spending on education is shown to depend negatively on the congestion parameter. Policy implications for the ‘quantity versus quality’ debate in schooling are also discussed.