Economics of Education Review 21 (2002) 623–633 www.elsevier.com/locate/econedurev Free-education in Sri Lanka. Does it eliminate the family effect? Athula Ranasinghe 1,a , Joop Hartog b,* a Department of Economics, University of Colombo, 94, Cumaratunga Munidasa Mawatha, Colombo 3, Sri Lanka b Department of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands Received 1 February 1997; accepted 11 April 2001 Abstract Using the human capital theory we modelled and estimated the school enrolment and the length of schooling decisions of Sri Lankans. Our results show a very clear positive association between family background and the education decision. Children of affluent families seem to derive more benefits from the free education policy. In particular, mother’s education and parents’ income have a strong effect on the education decision.  2002 Elsevier Science Ltd. All rights reserved. JEL classification: J24 Keywords: Demand for schooling; Student financial aid 1. Introduction Free education from kindergarten to university edu- cation is one of the great events that Sri Lankans are proud of. 2 This free education policy permits all Sri Lan- kans to enjoy public education free from grade one to university. Apart from that, the education policy of the country is generous in providing many incentives to stu- dents. For example, free meals, free textbooks and free uniforms are provided to students from time to time. Further, almost all undergraduate students in the univer- * Corresponding author. Tel.: +31-20-525-4252; fax: +31- 20-525-4254. E-mail addresses: athular@panlanka.net (A. Ranasinghe), hartog@fee.uva.nl (J. Hartog). 1 The first author gratefully acknowledges the fellowship granted by the University of Colombo (Sri Lanka)–Institute of Social Studies (the Netherlands) (UC–ISS) co-operative devel- opment project. 2 This luxury became a heritage of Sri Lankans in 1945 with the implementation of the recommendations by the special com- mittee on education reforms. 0272-7757/02/$ - see front matter  2002 Elsevier Science Ltd. All rights reserved. PII:S0272-7757(01)00038-3 sity system are covered by a scholarship programme. It is clear that all these measures substantially reduce the direct cost of education. Along with this generous edu- cation system, the schooling premium in wages is quite high and increases with the level of education. Appar- ently, the stimulus to supply has not depressed the wages of the higher educated to yield low premia in an inter- national comparison. For example, our own estimate [Ranasinghe & Hartog (1997)] 3 shows that the marginal rate of return for compulsory education is 2 percent, while it increases to 11 percent for a person who stays in school till grade 10. If one can complete the first quali- fying examination at grade 11 one will enjoy a 36 per- cent premium for the additional year. Our estimates are consistent with Kelly’s (1993) provisional estimates. 3 A more detailed version of this paper is published as a discussion paper at Tinbergen Institute, Amsterdam, where regression estimates of a simple version of the earnings function are reported, Ranasinghe & Hartog (1997). This paper is avail- able on request from Tinbergen Institute. Reference Number: TI-97-021/3. Email. Tinbergen@tinbinst.nl.