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The purpose of this paper is to measure inequality in education and examine how socioeconomic factors affect education inequality in Albania and Nepal.

Using large household survey data sets the authors calculate income-related inequality in education and decompose the inequality into factors that determine educational attainment. The decomposition procedure establishes the role played by two sets of factors: elasticities of education demand with respect to its determinants; and inequalities in those determinants. The paper then proposes a new mechanism to quantify the effects of policy simulations regarding income, urbanization, and distance to school on education inequality.

Both the countries show significant inequality in education. Educational attainment in Albania and Nepal is determined by socioeconomic, demographic and geographic factors of which three are particularly significant in affecting inequality – income, urbanization and distance to school.

While schooling for most individuals is largely financed by public subsidy in the countries, attainment is also likely affected by the price of education services and cost of health care. Identification of those factors in the context of more comprehensive data will enable researchers in future to draw firmer conclusions.

The proposed method can help to identify cost-effective and sustainable policies to reduce socioeconomic inequality in education in developing countries.

Reduction in education inequality can lead to higher income and better health which are instrumental in uplifting the poor in developing countries.

This is the first paper to measure education inequality using a concentration index and to propose a new mechanism to show the effect of simulated policies on education inequality.