On The Political Economy Of Educational Vouchers

Dennis N. Epple, Richard Romano

NBER Working Paper No. 17986
Issued in April 2012
NBER Program(s):   CH   ED   PE 

Two significant challenges hamper analyses of collective choice of educational vouchers. One is the multi-dimensional choice set arising from the interdependence of the voucher, public education spending, and taxation. The other is that household preferences between public and private schooling vary with the policy chosen. Even absent a voucher, preferences over public spending are not single-peaked; a middling level of public school spending may be less attractive to a household than either high public school spending or private education coupled with low public spending. We show that Besley and Coate’s (1997) representative democracy provides a viable approach to overcome these hurdles. We provide a complete characterization of equilibrium with an endogenous voucher. We undertake a parallel quantitative analysis. For income distributions exhibiting substantial heterogeneity, such as the U.S. distribution, we find that no voucher arises in equilibrium. For tighter income distributions, however, a voucher arises. For example, with the income distribution of Douglas County, Colorado, where a voucher was recently adopted, our model predicts a positive voucher. Public support for a not-to-large voucher arises because the cross subsidy to public school expenditure from those switching to private schools outweighs the subsidy to those that attend private school without a voucher.

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