Faced with the evident impossibility of providing free or significantly subsidized secondary and higher education to all, many poor and middle income countries choose to educate only those students who are most promising, using public examinations as means of distributing scarce resources. This paper investigates the inequality implications of highly selective education systems, using data from Tunisia. It explores the determinants of progression from primary to junior secondary school and what primary school dropouts do after they leave school. The results indicate that school characteristics play a key role in determining a student's successful completion of primary school. The typical definition of ''dropouts'' is argued to be too general to be useful in this context, and the distinction is made between the dropouts who were asked to leave and the ones who were allowed to stay in school as repeaters. This analysis shows that the importance of the influence of family characteristics on children's human capital changes significantly (and within and across family inequalities become more visible) when one takes into consideration not only the successful completion of primary school but also the status of dropouts after they leave school.