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Education Vouchers: Means Testing Versus Uniformity

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  • John Creedy

Abstract

This paper compares a uniform education voucher system with means-tested scheme in which the voucher is subject to a taper or withdrawal rate as parental gross income increases. Parents are assumed to maximise a utility function which includes their consumption, leisure and the human capital of children. The human capital production function has inputs consisting of parental human capital and expenditure on education. The government faces a budget constraint such that the voucher and a social dividend are financed from a proportional income tax. Alternative combinations of voucher and tax and transfer schemes are evaluated using a social welfare function defined in terms of the utility of parents. It is found that for all combinations of policy variables, a uniform voucher turns out to be optimal. However, if a binding constraint is placed on the maximum tax rate, means-testing, with a low taper, is found to be optimal.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 978.

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Length: 34 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:mlb:wpaper:978

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  1. Helen F. Ladd, 2002. "School Vouchers: A Critical View," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 3-24, Fall.
  2. Bearse, P. & Glomm, G. & Ravikumar, B., 1999. "On the Political Economy of Means-Tested Education Vouchers," Papers 9904, Michigan State - Econometrics and Economic Theory.
  3. Buly A Cardak & Phillip Hone, 2003. "Government Subsidies for Private Community Services: The Case of School Education," Working Papers 2003.01, School of Economics, La Trobe University.
  4. Buly A. Cardak, 2004. "Education choice, neoclassical growth, and class structure," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 643-666, October.
  5. repec:cup:macdyn:v:8:y:2004:i:2:p:226-49 is not listed on IDEAS
  6. Beckerman, W, 1979. "The Impact of Income Maintenance Payments on Poverty in Britain, 1975," Economic Journal, Royal Economic Society, vol. 89(354), pages 261-79, June.
  7. West, Edwin G, 1997. "Education Vouchers in Principle and Practice: A Survey," World Bank Research Observer, World Bank Group, vol. 12(1), pages 83-103, February.
  8. Caucutt, Elizabeth M., 2004. "Evolution Of The Income Distribution And Education Vouchers," Macroeconomic Dynamics, Cambridge University Press, vol. 8(02), pages 226-249, April.
  9. 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.
  10. Mitchell, Deborah & Harding, Ann & Gruen, Fred, 1994. "Targeting Welfare," The Economic Record, The Economic Society of Australia, vol. 70(210), pages 315-40, September.
  11. Cardak, Buly A, 1999. "Heterogeneous Preferences, Education Expenditures and Income Distribution," The Economic Record, The Economic Society of Australia, vol. 75(228), pages 63-76, March.
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