“Missallocation of Talent in Brazil: the role of the Education System”

ABSTRACT: This paper investigates how disparities in private and public education across different levels of schooling contribute to misallocation of talent in higher education. To understand whether public resources in education alleviate the financial constraints that poor parents may face, I develop an overlapping generation model based on Restuccia and Urrutia (2004) in which heterogeneous parents invest in the education of their children. I calibrate the model to the Brazilian economy and find that equalizing public spending per student across the levels of schooling increases aggregate output, consumption and welfare and generates a better selection of talented students in public universities.