VAT on school fees
macroeconomic benefits. In a study on government subsidies in South Korea, it became evident that a 20 percent increase in per-pupil funding for underperforming schools reduced the number of below-average students in mathematics, English, social studies, and science by 19.7 percent, 17.0 percent, 16.1 percent, and 18.1 percent compared with the control-side means (see figure 2). This shows that when a government shifts the aim towards state schools, student achievement in state schools will increase, potentially reducing gaps between state school pupils and private education students. This
Figure 2: Relationship between per-pupil spending and % of below-average students in 2010 (South Korea)
creates a bigger impact than the small population of private school pupils, and increases human capital more widely. When human capital is improved, the majority of the population can reach for higher- paid occupations, improving the level of socio-economic mobility.
This can especially be realized in Britain. Considering that only 6.4% of pupils in England attend private schools (BBC, 2024), investing in state education offers potentially larger national returns. In Galor- Zeira terms, a rise in the effective income of the lower-income majority—via subsidized state education—raises their investment capacity and returns, promoting mobility. With enhanced state education, more households may cross the threshold f , increasing overall productivity and long-run growth. Still, several challenges remain. First, the effect of redirected funds involves time lags; improved state school outcomes will not be immediate. Second, the scale of tax revenue may not suffice to generate significant improvements across all state schools, especially in disadvantaged areas. If this occurs, the policy risks creating a vacuum: diminishing private education without adequately uplifting public provision.
Inequality and mobility Inequality is also an important factor to consider, especially when a tax is involved. Inequality is the unequal distribution of resources such as wealth, income, and opportunities within an economy. The Great Gatsby Curve (Corak, 2013) illustrates a positive correlation between income inequality and socio-economic mobility: higher inequality is associated with lower mobility. This echoes Blanden’s (2005) study that the UK’s decline in
Figure 3: The Great Gatsby Curve (Corak, 2013)
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