This paper examines the rules governing the optimal distribution of educational resources originally developed by Arrow, in the context of a model in which some attempt is made to provide a rationale for government expenditure. Thus while there is a private market providing a perfect substitute for government education, if the government cannot adopt the lump-sum taxation which would make exclusive reliance on the private market optimal, but has to rely on an income tax for redistribution, then an optimally chosen scheme of educational provision by the government will powerfully reinforce the redistributive effect of income tax.

This paper examines the rules governing the optimal distribution of educational resources originally developed by Arrow, in the context of a model in which some attempt is made to provide a rationale for government expenditure. Thus while there is a private market providing a perfect substitute for government education, if the government cannot adopt the lump-sum taxation which would make exclusive reliance on the private market optimal, but has to rely on an income tax for redistribution, then an optimally chosen scheme of educational provision by the government will powerfully reinforce the redistributive effect of income tax.