Estimating the relationship between Public and Private Inputs for K-12 Education: Evidence from Longitudinal Microdata

Abstract

I examine whether private education expenditures and public K-12 funding are substitutes or complements for households whose children attend public school. Using a longitudinal microdata set, the Panel Study of Income Dynamics, I estimate the response of private household expenditures on education in response to changes in public expenditures. This paper implements a fixed-effects model that controls for unobservable household characteristics. I find evidence of complementarity between public and private education spending with an average elasticity of 2.4.

Keywords:

• education expenditures,
• consumption,
• human capital,
• public economics