The object of this paper is to research on both negative and positive externalities of public education as opposed to private education. Public goods, also known as merit goods, are something which the beneficiaries do not pay for directly but enjoy its utility. Taxes collected from the general public are used as a tool of distributing the economy’s income equally. This paper critically examines the allocation of the people’s taxes towards public education. Opportunity costs associated with this allocation along with its possible long-term ramifications are also discussed towards the end of this paper. Besides this, whether the governments should invest or allocate the economy’s resources in public education is also suggested with the support of logic, economic reasoning and research which will be discussed during the course of this paper.
As Weale (1992) explains in his book Education, externalities, fertility, and economic growth, “merit or public goods are provided by the governments to maximize the welfare of the society.” The people who enjoy the benefit of luxury goods do not have to pay in monetary terms directly in order to derive utility from them. Education amongst the people of an economy is encouraged throughout the world. The positive effects of education will reflect on an economy’s performance in the long-run. Weale (1992) narrates that these public goods are eventually paid for by the taxpaying households and businesses. It can be safely stated that education
expands the vision and makes the citizens more incisive and, hence, even choose their leadership at the same intellect.
When private point of view is concerned, it is argued in Weale’s (1992) book Education, externalities, fertility, and economic growth that individuals who bear the most percentage of tax from their income, or individuals who even pay the taxes, would receive no personal benefit from those who would actually be getting education. This would mean that on attaining one unit of education, the marginal unit gained by a student would fall to the level where it would be equal to the value of tax spent on public education. By rule, no positive externality will be created in the short run as the opportunity cost for a student attending a class is the loss of income which he/she otherwise could have gained. Therefore, not only the government’s resources (taxes of the people) would be going to waste, but might also reduce the economy’s potential to raise its GDP. However, in the long run for those individuals who cannot afford the basic education for their children, would be able to ensure a bright future for them children with public education provided till K-12. This would mean that with more people eligible to attend colleges and universities, an economy can expect less corruption, crime rate and a stronger and more skilled labor force.
In contrast to this, private educational institutions are known to provide better service and deliver better quality which is primarily driven by profit motive. However, Johnes et al. (2004) explain in their handbook International handbook on the economics of education that public schools may face many market failures in terms of the quality.
In conclusion, providing basic education to the people may not have short-term positive externalities because then the government might ignore other important areas of investment at the cost of basic schooling, as pointed out by Suriñach et al. (2007) in their book Knowledge externalities, innovation clusters and regional development. Secondly, the same amount of money can be spent on funding of higher education which will actually provide the economy with a skilled workforce rather than high school graduates. As opposed to this, the economy is more likely to make more people eligible to attend universities in the first place if K-12 public schools are subsidized. Therefore, in the long-run there would be more people who would be more likely to pursue higher education as opposed to when the government did not finance the public schools.
Johnes, G., & Johnes, J. (2004). International handbook on the economics of education. Cheltenham, UK: Edward Elgar.
Suriñach, J., Moreno, R., & Vayá, E. (2007). Knowledge externalities, innovation clusters and regional development. Cheltenham, UK: Edward Elgar.
Weale, M. (1992). Education, externalities, fertility, and economic growth. Washington, DC.