The Shadow Price of Schooling: Determinants of Household Expenditure on Private Tutoring in Pakistan

Abstract

Shadow education, a private supplementary tutoring, provided outside the formal school system, has expanded globally by creating a parallel educational market that underpins well socioeconomic inequalities in society. The prevalence of shadow education is documented, the specific economic burden it imposes on households in developing economies remains under-analysed. This study investigates the determinants of household expenditure on shadow education in Lahore, Pakistan, utilizing a survey of 120 households across stratified socioeconomic localities (Johar Town and Shahdara). Using Ordinary Least Squares (OLS), we analyse the elasticity of tutoring expenditure with respect to household income, parental education, and spatial demographics. Our findings indicate a clear "substitution effect" related to paternal education as an increase in a father's educational accomplishment significantly decreases household expenditure on private tutoring. This suggests that educated fathers often replace market services with time spent on home-based parental involvement. On the other hand, higher household income and living in urban areas are linked to greater expenditures on education, which suggests that shadow education acts as a luxury good, increasing social stratification. The study estimates that residing in high-income areas results in an average monthly difference of about PKR 13,941 in educational spending. The results highlight that the public education system has failed to act as a levelling mechanism, instead forcing households into a "bidding war" for human capital accumulation. Policy recommendations give emphasis to regulate tuition fees and by enhancing public school quality in order to minimize the shadow economy's negative impact on household welfare.