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Education Vouchers: Means Testing Versus Uniformity


  • John Creedy


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.

Suggested Citation

  • John Creedy, 2006. "Education Vouchers: Means Testing Versus Uniformity," Department of Economics - Working Papers Series 978, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:978

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    1. repec:cup:macdyn:v:8:y:2004:i:2:p:226-49 is not listed on IDEAS
    2. Caucutt, Elizabeth M., 2004. "Evolution Of The Income Distribution And Education Vouchers," Macroeconomic Dynamics, Cambridge University Press, vol. 8(02), pages 226-249, April.
    3. Bearse, Peter & Glomm, Gerhard & Ravikumar, B., 2000. "On the political economy of means-tested education vouchers," European Economic Review, Elsevier, vol. 44(4-6), pages 904-915, May.
    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. Buly A Cardak & Phillip Hone, 2003. "Government Subsidies for Private Community Services: The Case of School Education," Working Papers 2003.01 EDIRC Provider-In, School of Economics, La Trobe University.
    6. 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.
    7. Mitchell, Deborah & Harding, Ann & Gruen, Fred, 1994. "Targeting Welfare," The Economic Record, The Economic Society of Australia, vol. 70(210), pages 315-340, September.
    8. 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.
    9. Beckerman, W, 1979. "The Impact of Income Maintenance Payments on Poverty in Britain, 1975," Economic Journal, Royal Economic Society, vol. 89(354), pages 261-279, June.
    10. 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 818-834, August.
    11. Helen F. Ladd, 2002. "School Vouchers: A Critical View," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 3-24, Fall.
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