This paper analyses the relation between parents’ earnings and their children's education. In a context of perfect altruism, the model describes parents’ decisions on how much to consume and how much to invest in their children's education. The model predicts that returns on education in terms of wages should be linear. Using this model in a competitive economy, we show how the outcome depends on government subsidies or taxes on education. The usual tradeoff equality-efficiency arises in this context. Finally, the model provides some insights into the relation between education and productivity.
I am very grateful to Marta Garriga-Massoni for her useful comments and suggestions. I am also very grateful to Generalitat de Catalunya for its financial support to my research in the first semester of 2008 and to Banco de España for its financial support during the second semester of 2008 and first semester of 2009.