This　paper　studies　the　education　policy　choices　in　a　decentralized　economy　with　two　levels　of　governments　and　regional　income　disparity.　We　employ　a　dynamic　game　model　incorporating　overlapping　generations　to　analyze　the　optimal　education　spending　of　the　central　and　local　governments,　and　the　subsequent　effects　of　such　financing　arrangements　on　the　dynamics　of　regional　income　distribution.　We　show　that,　whether　the　central　government　should　provide　public　education　and　what　level　should　be　provided　would　depend　on　the　extent　of　regional　disparity.　Only　when　the　disparity　is　large　could　the　provision　of　public　education　by　the　central　government　improve　social　welfare　and　reduce　regional　disparity　over　time.　The　optimal　education　expenditure　of　central　government,　however,　does　not　monotonically　increase　with　the　extent　of　regional　disparity.　Finally,　policy　implications　for　China　are　discussed.　©,　2015,　Systems　Engineering　Society　of　China.　All　right　reserved.