Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16International EvidenceUS economic studies, AER June 2007Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber1 of 31State and Local Government Expenditures11.3 Evidence on Competition in Education Markets11.2 How Is the Government Involved in Education?11.1 Why Should the Government Be Involved in Education?Chapter 1111.4 Measuring the Returns to Education11.5 The Role of the Government in Higher Education11.6 ConclusionChapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber2 of 31State and Local Government ExpendituresChapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber3 of 31Why Should the Government Be Involved in Education?11 . 1There are a number of public benefits (positive externalities) to education that might justify a government role in its provision.ProductivityThe first potential externality from education is productivity. If a higher level of education makes a person a more productive worker, then society can benefit from education in terms of the higher standard of living that comes with increased productivity.CitizenshipEducation may make citizens more informed and active voters, which will have positive benefits for other citizens through improving the quality of the democratic process.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber4 of 31Why Should the Government Be Involved in Education?11 . 1Credit Market FailuresAnother market failure that may justify government intervention is the inability of families to borrow to finance education. In a world without government involvement, families would have to provide the money to buy their children’s education from private schools.educational credit market failure The failure of the credit market to make loans that would raise total social surplus by financing productive education.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber5 of 31Why Should the Government Be Involved in Education?11 . 1Failure to Maximize Family UtilityThe reason governments may feel that loans are not a satisfactory solution to credit market failures is that they are concerned that parents would still not choose appropriate levels of education for their children.RedistributionIn a privately financed education model, as long as education is a normal good (demand for which rises with income), higher-income families would provide more education for their children than would lower-income families.Income mobility, whereby low-income people have a chance to raise their incomes, has long been a stated goal for most democratic societies, and public education provides a level playing field that promotes income mobility.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber6 of 31How Is the Government Involved in Education?11 . 2Free Public Education and Crowding OutAn important problem with the system of public education provision is that it may crowd out private education provision.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber7 of 31How Is the Government Involved in Education?11 . 2Solving the Crowd-Out Problem: Voucherseducational vouchers A fixed amount of money given by the government to families with school-age children, who can spend it at any type of school,public or private.Experiences with vouchers, private schools?Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber8 of 31How Is the Government Involved in Education?11 . 2Solving the Crowd-Out Problem: VouchersChapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber9 of 31How Is the Government Involved in Education?11 . 2Solving the Crowd-Out Problem: VouchersConsumer SovereigntyThe first argument in favor of vouchers is that vouchers allow individuals to more closely match their educational choices with their tastes.CompetitionThe second argument in favor of vouchers is that they will allow the education market to benefit from the competitive pressures that make private markets function efficiently.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber10 of 31How Is the Government Involved in Education?11 . 2Problems with Educational VouchersVouchers Will Lead to Excessive School SpecializationThe first argument made here for vouchers, that schools will tailor themselves to meet individual tastes, threatens to undercut the benefits of a common program.By trying to attract particular market segments, schools could give less attention to what are viewed as the central elements of education.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber11 of 31How Is the Government Involved in Education?11 . 2Problems with Educational VouchersVouchers Will Lead to SegregationCritics of voucher systems argue that vouchers have the potential to reintroduce segregation along many dimensions, such as race, income, or child ability.Vouchers Are an Inefficient and Inequitable Use of Public ResourcesIf the current financing were replaced by vouchers, total public-sector costs would rise, since the government would pay a portion of the private school costs that students and their families are currently paying themselves.Chapter 11 Education© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber12 of 31How Is the Government Involved in Education?11 . 2Problems with Educational VouchersThe Education Market May Not Be CompetitiveThe arguments of voucher supporters are based on a perfectly competitive model of the education market. Yet the education market is described more closely by a model of natural monopoly, in which there are efficiency gains to having only one monopoly provider of the good.The Costs of Special EducationEach child would be worth a voucher amount that represents the average cost of educating a child in that town in that grade, but all children do not cost the