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On the Costs and Benefits of a Mixed Educational Regime

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  • Ryuichi Tanaka

Abstract

This paper studies the costs and benefits of a mixed educational regime in which tax-financed public schools and tuition-financed private schools coexist. In the model, households are not allowed to borrow for education, but have a choice to educate their children in a public or a private school. The tax rate is determined by majority vote. The future income of children depends on the quality of education and stochastic ability. Using a numerical method, I calibrate the model to the U.S. economy, calculate the long-run outcomes and compare them with those in a purely public or private educational regime, consisting solely public or private schools. Simulations reveal that in the mixed regime long-run mean income is higher and long-run income inequality is lower than in the private regime. They also reveal that although there is no significant difference in long-run mean income between the mixed and the public regime, the tax rate and the quality of public education are significantly lower and thus long-run income inequality is higher in the mixed regime than in the public regime. To investigate the determinants of the performance of the mixed regime relative to the public or the private regime, I simulate the model with various parameter values. I find that the mixed regime generates higher long-run mean income than the public regime if the elasticity of future income to education is high. I also find that long-run mean income is higher (lower) in the mixed regime than in the public regime if the variance of stochastic ability is large (small). I use the model to evaluate the effects of the introduction of private educational vouchers. The results suggest that the introduction of vouchers improves long-run total welfare, and reduces long-run income inequality as long as public education is maintained.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 470.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:470

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Keywords: Income inequality; School choice; Majority vote; Stochastic ability;

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References

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  1. David De La Croix & Matthias Doepke, 2009. "To Segregate or to Integrate: Education Politics and Democracy," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 597-628.
  2. Tanaka, Ryuichi, 2003. "Inequality as a determinant of child labor," Economics Letters, Elsevier, vol. 80(1), pages 93-97, July.
  3. Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
  4. Gerhard Glomm & B. Ravikumar, 1998. "Opting out of publicly provided services: A majority voting result," Social Choice and Welfare, Springer, vol. 15(2), pages 187-199.
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  7. Glomm, Gerhard & Lagunoff, Roger, 1999. "A Dynamic Tiebout Theory of Voluntary vs. Involuntary Provision of Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 659-77, July.
  8. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  9. Raquel Fernandez & Richard Rogerson, 1995. "Education Finance Reform and Investment in Human Capital: Lessons from California," NBER Working Papers 5369, National Bureau of Economic Research, Inc.
  10. Heckman, James J., 2000. "Policies to foster human capital," Research in Economics, Elsevier, vol. 54(1), pages 3-56, March.
  11. de la CROIX, David & DOEPKE, Matthias, 2002. "Public versus private education when differential fertility matters," CORE Discussion Papers 2002022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
  13. Michele Boldrin, 1992. "Public Education and Capital Accumulation," Discussion Papers 1017, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  19. David Card & Alan Krueger, 1996. "Labor Market Effects of School Quality: Theory and Evidence," Working Papers 736, Princeton University, Department of Economics, Industrial Relations Section..
  20. Thomas J. Nechyba, 2001. "Centralization, Fiscal Federalism and Private School Attendance," NBER Working Papers 8355, National Bureau of Economic Research, Inc.
  21. Raquel Fernandez & Richard Rogerson, 1994. "On the political economy of education subsidies," Staff Report 185, Federal Reserve Bank of Minneapolis.
  22. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
  23. Solon, Gary, 1992. "Intergenerational Income Mobility in the United States," American Economic Review, American Economic Association, vol. 82(3), pages 393-408, June.
  24. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  25. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
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