This paper examines the division of the government education budget between compulsory free education and free non-compulsory education. One would expect that there is no substitution between the two, since the budget cost is for financing education without reference to whether it is compulsory or free, but the real situation is different. The expansion of compulsory education entails the allocation of resources to education also for those who drop out of the education system, and these resources come at the expense of the expansion of free education. The main arguments in favor of compulsory education are the greater efficiency, from the budgetary aspect, of promoting education through investment in compulsory education rather than financing non-compulsory education; the importance of raising the standard of education among the weaker sections of the population; and the friction that sometimes exists between parents and children over the right amount of investment in education. Enlarging the pool of individuals (parent and children) subject to compulsory education against their will and the damage caused to them as a result of a rise in the age threshold of compulsory education are the main factors acting in the opposite direction, i.e., in favor of financing free but non-compulsory education. The simulations in the paper yield the following conclusion: a) The existence side-by-side of compulsory education and free non-compulsory education, as exists in many countries, in many cases constitutes a socially efficient solution. b) The size of the education budget is an important factor in its division between free compulsory education and free non-compulsory education. Its effect on the age threshold for compulsory education is not monotonic: with a low budget it acts to extend compulsory education, and within a certain budget range it serves to expand free education at the expense of compulsory education. c) With a low budget there may be situations in which the social optimum is the investment of the entire education budget in compulsory education (which is free). d) Increasing the education budget acts to raise the age threshold of free education and to increase the gap between the free education and the compulsory education thresholds.

For a PDF of the full article in Hebrew