pub econ lecture 11 education

8/3/2019 Pub Econ Lecture 11 Education

1/22

Public Finance

Dr. Katie Sauer

Education


2/22

Figure 11-1: Education Spending and Outcomes

Around the World


3/22

Rationale for government involvement in education:

Positive Externalities

- productivity

- citizenship

Market Failure

- credit market failure (lack of collateral)

Parental failure to maximize family utility

Equality in Access

- income mobility (redistribution)


4/22

A Model of Free Public Education(Peltzman 1973)

Individuals choose how much to spend on their childrens

education.assume: more spending = higher quality education

Public sector provides a fixed level of education spending

(quality).


5/22

If parents want higher quality, send children to privateschool.

assume: cant top off public education by paying

for tutoring, etc

assume: if go to private school, forgo the free

public education


6/22

Spending on

Other Goods

Spending on

Education

BC

(simplicity: ignore education funding)

Parents face a tradeoff betweenspending on education and spending on

other goods.


7/22

Spending on

Other Goods

Spending on

Education

BC

3 different families: X, Y, Z

Initially, no free public school.- spend on private school

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ


8/22

Spending on

Other Goods

Spending on

Education

BC

Suppose the government provides

EF level of education for free.

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF


9/22

Spending on

Other Goods

Spending on

Education

BC

Individuals can spend their entire

income on other goods and still get

EF education for their kids.

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF


10/22

Spending on

Other Goods

Spending on

Education

BC

If parents desire more than EF,

they forgo free public education

and the original budget constraintis relevant.

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC


11/22

Spending on

Other Goods

Spending on

Education

BC

Family X can now achieve bundle A

- spend more on other goods

- get more education

- higher indifference curveICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC

A


12/22

Spending on

Other Goods

Spending on

Education

BC

Family Y will likely also opt for A

- spend much more on other

goods- some reduction in education

- higher indifference curve

- crowding out

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC

A


13/22

Spending on

Other Goods

Spending on

Education

BC

Family Z will not change education

spending

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC

A


14/22

Free public education

- increases education level for some- decreases education level for some

- does not affect education level for some


15/22

Vouchers

Suppose each family is given a voucher for education

level EF.- give to public school for free education

- give to private school to offset some tuition cost


16/22

Spending on

Other Goods

Spending on

Education

BC

The first segment of the BC is the

same whether education is free or

there is a voucher.

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF


17/22

Spending on

Other Goods

Spending on

Education

BC

The voucher will raise the amount

that can be spent on education.

ICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC


18/22

Spending on

Other Goods

Spending on

Education

BC

Each family can now increase its

consumption of both goods.

- X stays in public school- Y goes to private school

- Z goes to private schoolICx

Ex

Gx

EY EZ

GZ

GYICY

ICZ

EF

new BC

A

B

C


19/22

Economic theory can support educational vouchers asa policy option in the US.


20/22

Problems with Vouchers:

1. Excessive School Specialization

regulate so they cant specialize too much?


21/22

2. Inefficient / Inequitable use of public resources

- for families like X, still attend public school

and still takes government EF to finance

- for families like Y, with vouchers they willnow send their kids to private school, still

costing government EF to finance (family

makes up the difference)

- for families like Z, with vouchers, now they

get money toward tuition, which costs the

government an additional EF to finance


22/22

3. Education Market may not be competitive

- natural monopoly

4. Costs of Special Education

- 5.8 million students

- $50 billion (14% of total)

5. Segregation

pub econ lecture 11 education

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