21 CHAPTER Education PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-2 Education  Largest area of expenditure for state and local governments  One-third of all outlays  Public provision not necessary  Many private schools  Government financing does not imply public production

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-3 The Growth in Education: Students and Expenditures

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-4 The Growth in Education: Students and Expenditures

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-5 Rationales for Government Involvement  Education produces a positive externality  Everyone better off living in a more educated society  May be inframarginal

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-6 Rationales for Government Involvement  Socialization  Public education makes students into better citizens  Instill common values  Private schools homogenous  Although public schools can often homogenous due to residential sorting

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-7 Rationales for Government Involvement  Fairness  Most students go to public schools regardless of economic status, thus equalizing position of students at the bottom of the economic ladder.  Even under public production wealthy receive better education  Government financing does not mean government production  Even with government financing, education can still be produced in private sector

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-8 The Level of Government Financing  Traditionally, education was the domain of local governments  Education becoming more centralized  School districts becoming larger  School finance becoming centralized  Equalizing opportunity

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe 21-9 The Level of Government Financing

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Competition, Vouchers, and School Choice  Alternative methods of providing education becoming more common  Rely on public funding because of fairness argument  Create more competition for public schools  Incentive for improvement

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Vouchers  Financing placed in parent’s hands  Parents choose the school  Advantages  Choice  Competition  Disadvantages  Admission standards  Quality Control  Potential increase in costs

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Public School Choice  Parents have the option of sending their child to a public school other than the one for which they are zoned  Advantages  Choice competition  Disadvantages  Avoids voucher disadvantages

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Public School Choice

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Charter Schools  Schools that receive public funding  Are exempted from some regulations  Public but operates like a private school  Relatively new  Small numbers of students and schools

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Homeschooling  % of school-age children were home-schooled  Reasons:  Dissatisfaction with other options  Religious reasons  Homeschooling varies by state

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe School Choice at the College Level  U.S. higher education system typically acknowledged as world’s best  What makes U.S. higher education relatively better?  Complete school choice  State subsidies work like a voucher system  Market factors more strongly influence instructor pay

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Income Advantages to Education

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Signaling Versus Human Capital  Higher incomes may be a result of:  Increased human capital  Job market signaling  Both increased human capital AND job market signaling

PUBLIC SECTOR ECONOMICS: The Role of Government in the American Economy Randall Holcombe Education and Productivity  Relationship not easily quantified  Strong correlation across countries  Could be higher income leads more education  Education has an impact on productivity, but higher incomes cause people to demand more education  Value of education as a consumption good