Public Finance and Public Policy by Jonathan Gruber - Essay Example

Public Finance and Public Policy by Jonathan Gruber Chapter 11 – Education 11 Why Should the Government be involved in Education? There are several public benefits to education that may justify the government’s role in its involvement. 1. Productivity If a higher level of education will make a person more productive, then the society could benefit from education in terms of higher living standards due to the increased productivity. 2. Citizenship Education makes citizens more informed as well as active voters, which in turn has positive benefits for other people through the quality improvement of the democratic process. 3. Credit Market Failures The families’ inability to borrow to finance education is another market failure that would justify the government’s intervention. 4. Failure to maximize Family Utility The government may feel that loans are not a good solution to credit market failures because it is concerned that parents would still choose appropriate levels of education for their children. 5. Redistribution In a privately funded education model, as long as education is a normal good, wealthy families will provide more education to their children than the low-income families. 11.2 How Is The Government Involved in Education? 1. Free public Education and Crowding Out One problem with the public education provision system is that it may lead to crowding out in private education provision. 2. Solving the Crowd-Out Problem: Vouchers The crowding out the problem can be solved using educational vouchers. These vouchers are fixed amounts of money offered by the government to families with school-age children to spend it on any school, private or public. 3. Solving the Crowd-Out Problem: Vouchers Consumer Sovereignty One benefit of vouchers is that they allow individual to match closely their choices to education with their tastes. Competition Another benefit of the vouchers is that they allow the education market to take advantage of the pressures of competition that enable the private markets to operate efficiently. 4. Problems with Educational Vouchers Vouchers Will Lead to Segregation The critics of the voucher system argue that they have a potential to bring back segregation along various dimensions, such as income, race or child ability. Voucher are and inefficient and inequitable use of public resources If vouchers replaced the current financing, there would be a rise in total public-sector costs since the government would pay a portion of private school costs being currently paid by families and students. The Education Market May Not be Competitive Voucher supporters base their arguments on a perfectly competitive model of the education market. However, the market is described jointly by the natural monopoly model, where there are efficiency gains to having only a single monopoly provider of the commodity. The Cost of Special Education Every child would be worthy a voucher amount that represents the average cost of catering for a child’s education in that particular town and grade. 11.3 Evidence On Competition in Education Markets 1 Direct Experience With Vouchers There has been a number of small-scale voucher programs implemented in the US in recent years. An example is the most studied program used in Milwaukee 2 Experience with Public School Choice There are some districts that have not given out vouchers for private schools, but have allowed students to choose freely among the public schools. 3 Experience with Public School Incentives Making the schools accountable for student performance could provide incentives for schools and increase the quality of education offered. Accountability programs could have two effects First, they could make schools and teachers to ‘teach to the test.’ Secondly, schools could manipulate the pools of those taking tests and the conditions under which they take the tests to maximize success. 4 Bottom Line on Vouchers and School Choice There is some evidence that the vouchers will improve the academic performance of the student in private schools, mostly in a nation where the system is widespread. There is little evidence on the benefits of the system to public schools. 11.4 Measuring the Returns to Education These returns refer to the benefits that the society enjoys when students get more education. 1 Effects of Education Level on Productivity There is a diverse literature that shows that extra education leads to higher wages. However, there is a negation over the implication of this correlation. 2 Education as Human Capital Accumulation Human Capital is a person’s stock of skill that could be increased through education. Education as a screening device Screening – is a model that implies that education provides the means of separating high from low ability person and does not improve skills. Policy implications Under the human capital system, the government would need to support education or provide loans to people to enable them get education. However, under the screening model, the government would not support more education. Differentiating the theories Most benefits of education relate to human capital even though there may be some screening benefits to getting a high education or high school degree. 3 Effects of Education Levels on other outcomes Higher levels of education are associated with the unlikeliness of criminal activities They are also associated with better health of the people receiving the education and. Higher levels of education among workers are associated with higher rates of productivity of their co-workers. 4 The impact on School Quality Findings suggest that the results of efforts to enhance school quality could depend highly on the approach taken for improvements 11.5 The role of the government in Higher Education 1 Current Government Role State Provision The general form of government financing higher education is through a direct provision in locally and state-supported colleges and universities. Pell Grants This program is a subsidy for higher education given by the federal government to low-income families to cater for their educational expenditures. Loans The loans are either in the form of direct student loans or guaranteed student loans. Tax Relief The government also finances higher education through a series of tax breaks for college students and their families. 2 What is the market failure and how should it be addressed. The major motivation for government intervention in higher education is not to produce external benefits, but to correct the failure in the credit market for student loans. Conclusion The provision for education, an impure good, can be deemed one of the most beneficial government functions in the US and around the world. References Gruber, J. (2011). Public Finance and Public Policy. New York: Worth Publishers. Read More