Public Education Spending and Private Substitution in Urban China

Abstract

This paper documents robust evidence that increases in public spending on basic education are associated with significant reductions in household private tutoring spending in urban China. This reduction comes primarily from the top and bottom income households, suggesting multi-dimensional demands for private tutoring. It concentrates on households with an only boy and is larger for middle-school than primary-school children. Increases in public education spending are associated with significant reduction in school tuition, which is homogeneous across households of different income levels. Changes in household spending on textbooks in response to more public education spending are modest but statistically insignificant.

Keywords: public school spending, household education spending, tuition, private tutoring, urban China

JEL Classification: H72, I21, O15