Chapter_07_v2 - Part 2 Public Expenditure Public Goods and...

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Part 2 – Public Expenditure: Public Goods and Externalities Chapter 7 – Education 1. There are numerous rationales given for government provision of education. Even though education is primarily a private good, many argue that educating a child provides external benefits. However, the existence of a positive externality implies that government should subsidize education rather than making it free and mandatory. Other rationales are based on equity, including a belief in commodity egalitarianism. The rationales do imply a lower level of provision of higher education versus primary and secondary. Higher education has higher private benefits and fewer externalities, therefore requires a lower level of provision. 2. It may be that national income is increased purely though private returns to education summed up across the economy. If this is the case, one could not use an externality-based argument to justify subsidization. However, if education quality increases the growth rate of national income outside of the returns that accrue to individuals who consume the education, then private decisions will yield a lower than efficient level of education quality. This reasoning would allow for government subsidization that would improve the quality of education. 3. If students are required to pay “a lifelong tithe on all earnings” there might be a distortion in choices of careers among students. Under the tithe system, some students would choose a lower paid (and less productive) career path, compared to the situation in which
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Chapter_07_v2 - Part 2 Public Expenditure Public Goods and...

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