Objective. The objective of this article is to examine whether public expenditure on higher education has an effect on income inequality by increasing enrollment.
Methods. Combining data from the World Bank Development Indicators with data from the World Income Inequality Database version 2, we study the relation between government education expenditure and enrollment rates, as well as the relation between government education expenditure and the change in income inequality during the 1980s and the 1990s.
Results. We find that public expenditure on higher education has no positive effect on enrollment. Increased enrollment is mainly explained by higher GDP per capita. Using carefully selected Gini coefficients to ensure comparability over time, we do not find a robust relation between higher education expenditure and lower income inequality, contrary to some previous studies.
Conclusions. Government expenditure on higher education has very limited effects on enrollment and inequality. This finding, however, does not imply that there are no social benefits from such subsidies. For example, in countries where high marginal tax rates decrease the economic returns to education, governments may wish to compensate for this through subsidies.