Politics and Preschool : The Political Economy of Investment in Pre-Primary Education

Abstract

What drives governments with similar
 revenues to publicly provide very different amounts of goods
 for which private substitutes are available? Key examples
 are education and health care. This paper compares spending
 by Brazilian municipalities on pre-primary education -- a
 good that is also provided privately -- with spending on
 public infrastructure like parks and roads, which lacks
 private substitutes. Panel data from 1995-2008 reveal how
 the distribution of income affects public investment.
 Revenue is endogenous to investment outcomes, and the
 analysis addresses this problem by exploiting a 1998,
 nationwide education finance reform and several revisions to
 the policy. The author constructs a variable that captures
 exogenous variation in revenue generated by nonlinearities
 of the law to instrument for observed revenue.
 Municipalities with higher median income and more inequality
 are less likely to allocate revenue to education or to
 expand pre-primary enrollment. They are more likely to
 allocate revenue to public infrastructure. There is
 suggestive evidence that this occurs for two reasons,
 hypothesized in two separate literatures. In rich and
 unequal municipalities, fewer total people support public
 education spending (the collective choice channel), and
 also, any given poor person wanting public education has
 less influence over policymakers there (the political power channel).