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This paper analyses the mechanisms of stratification and inequalities in educational achievements. The main objective is to determine how stratification leads to unequal educational outcomes and how inequalities are channelled through student characteristics, school characteristics and peer effects. This analysis is undertaken in five countries differentiated by their schooling systems. The countries are Japan, Finland, Germany, Italy and the UK, and the dataset used is PISA 2003. The analysis consists of a multilevel econometric model used to explain variations in performance scores. The explanatory variables are student, school and peer characteristics. The institutional context of each education system is used to interpret the results and to describe how inequalities arise. In the last section, policy implications, based on the regression results, are derived. [ABSTRACT FROM AUTHOR]