This written assignment aims to analyze the potential costs and benefits of the introduction of school vouchers to be used in public or private schools. I will present and analyze them under compulsory education only and will present some direct experience with vouchers and their results. First of all, it is important to understand the reasons for public involvement in education. Intervention of governments in the market for schooling has been Justified on the grounds of externalities attributable to education, on the grounds of credit market imperfections and on the grounds of the impact of education on equality of pportunity.
Consequently a variety of public and private institutions have emerged throughout the world to fund, provide and manage schools. Of further importance becomes the necessity to develop means of funding schools when one realizes that current levels of educational funding are quite sizeable relative to national income throughout the world. For OECD and developing countries alike, expenditure on primary and secondary schooling in recent years has averaged 3 to 4 per cent of GDP. Around this 3 to 4 per cent average, variations range between the OECD countries are arrow, ranging in 2005 from 2. per cent for Greece (low OECD) to 4. 2 per cent for Sweden and Switzerland (high OECD) [table 1, primary, secondary and post- secondary nontertiary education column] Nevertheless, solo public intervention does not ensure the achievement of the social optimum as the democratic choice of educational investment through tax financing is very likely to lead to under or over-investment in education. On the other hand, the existence of a private sector providing educational services does not recreate the conditions for Pareto optimality (through exclusion).
In addition, the presence of publicly provided education creates disincentives for investment in education from richer families, who wish to avoid the redistributive nature of public schooling, financed through general taxation. The existence of these disincentives yields economic implications, in terms of both growth and inequality persistence. Therefore, alternative strategies for providing a public subsidy to education have been defended and discussed.
One alternative includes school vouchers, whereby parents are given a credit of a certain value (for example, the average spending on a child of given age in public education system) that can be used toward the cost of tuition at any type of school, public or private. The objective of a voucher program is to extend the financial support from the government to other education provider and thus give all parents, regardless of income, the opportunity to choose the school that best suits their preferences.
This type of analysis motivates support for educational vouchers as a policy option in several countries. Supporters of vouchers make two main arguments in their favor. The first one as to with consumer sovereignty, in the sense hat vouchers allow individuals to align more closely their educational choices to their tastes. The second one is related with competition. School vouchers increase school choice, opening up the ability to escape the trade-off between equality and efficiency. In fact, expanding school choice makes school financing dependent on competition among schools.
Transforming (partially or entirely) school financing by means of a direct payment proportional to the number of students enrolled increases school accountability, since customers can choose for better-perceived chools and abandon poorly performing ones. This lead to the creation of a situation of quasi-markets, where the public sector may retain the monopoly of provision, but school have the responsibility and the incentives to deliver educational services to the greatest number of customers using the minimum amount of resources . Also, expanding the ability to access the private sector of education raises the overall level of productivity.
These arguments provide strong support for the use of educational vouchers. There are, however, a number of compelling arguments that can be made against using hem. Firstly, with the closure of poorly performing schools, peripheral city suburbs and rural areas would be deprived of educational structures, since all parents concerned would opt out, thus aggravating the competition problem instead of solving it. On the other hand, oversubscribed schools do not have an incentive to expand, because of the risk of diluting the homogeneity of social environment that made them so desirable to the parental population.
So there is here a tension between government effort to ensure equal opportunities for all and the ability of the ducational market to put pressure on underperforming schools. But the core of the debate over school choice is the information set of families. Since we can always think of increased school choice as a system of school vouchers covering the full cost of attendance and fully redeemable in the public sector only, the problem becomes how do families select their preferred schools.
If the increased school choice creates an incentive to attract students, we expect schools to differentiate their supply, both in terms of quality and services. If parents are risk averse, and the degree of risk version is inversely related with family wealth, then we expect that families with poor backgrounds to prefer standardized courses to differentiated ones, since they are unable to choose among existing alternatives. Thus it looks as if either the efficiency gains from school competition attenuate because of the reduced demand for school differentiation, or increased school choice discriminates against less educated parents.
Another problem has to do with the introduction of public subsidies, partially or totally covering school fees in the private sector. There could be here a fairly nefficient use of public resources. The goal of the government policy is then to direct resources to the currently undereducated; if most of the gain from the use of the voucher goes to families that were already paying for private school for their children on their own (higher- income families) then the goal is not being met. Income and use of private schools are positively correlated.
The government must then target the voucher’s value to the familys income, having vouchers for which the value falls as the familys income rises. This approach would, firstly, target resources to groups who re most likely to use them to increase educational attainment; secondly, it would attendees; finally, according to the fact that lower-income children are left-behind in public schools by their higher-ability and more motivated peers, it would provide resources for the remaining public schools to succeed.
Following this last point, the pioneer experience of introducing school vouchers in Milwaukee in 1990 (vouchers targeted low-income families, were only redeemable in private non-sectarian schools and were limited to 1% of the student population) evealed that attending private schools raises the average test-scores of children from low background families by 1-2% points in mathematics, leaving reading and comprehending capabilities unaffected. This study suggests that there could be some positive effect for disadvantaged students in attending private schools.
But this conclusion does not necessarily extend to 2 unrestricted voucher programs as most of the attractive features of the private sector (selectivity of the environment, attraction of better teachers) cannot be replicated to a larger scale, because they are available in limited supply. Another paper by Bohlmark and Lindahl (2012), study the Swedish case where vouchers were introduced in 1992. Using data on compulsory school graduates in 1988-2009, they find that this system increased average educational performance, but only after a decade from its implementation.
The results show that there was actually an increase in school productivity because educational performance improved, but expenditures remained constant. This improvement results from an increase in competition and spillover effects, and not because of differences between tudents from voucher schools and public schools. This suggests that the design of the system is very important. In Sweden, regulations do not pose a barrier to new schools entering the market. Moreover, these schools cannot charge any additional fee and cannot exclude students based on their ability, ethnicity and family income (cream-skimming is not allowed).
This fosters competition by improving productivity, instead of by student selection. The voucher system seems then to give families enough choice such that it increases competition since the system is based on the unds following the student. But, it is important to note that the characteristics of the system are essential to determine its results. Thus, evidence from Sweden shows that voucher could possibly improve the education system conditional on its design. Netherlands is another country which illustrates the effectiveness of vouchers. 0 percent of the enrollments are in government-financed private schools. On average, these students tend to be from families which belong to a lower social class when compared to those from which students attend public school, and yet test scores achieved are higher. The level of choice offered, alongside fixed funding from government per student (with additional funding for disadvantaged students) appears to provide incentives for Dutch schools to keep improving. Colombia has a targeted voucher system.
The program PACES was launched in 1991 to provide the poorest third of its population access to secondary education. Municipal governments provided 20 percent of the funding for PACES and the federal higher educational attainment. When compared with non-voucher students, voucher students were 6 percent less likely to repeat a grade; they scored 0. standard deviations higher on achievement tests and they were 20 percent more likely to take the college entrance exam. They were also less likely to be married and earned more in wages.
To conclude, even if we cannot expect overall gains in educational achievements or improved cost effectiveness, still vouchers could remain desirable if they were targeted to the most disadvantaged students. However their impact is heavily dependent on how the system is designed. Only means-tested vouchers, possibly made conditional on student ability, can possibly represent a useful policy nstrument to increase the equality of opportunity in accessing the higher levels of education.
This does not prevent that the average ability of students remaining in the public schools is meant to decline, unless increased competition and more efficient use of teaching resources more than compensate the decline in student inputs. 3 Attachment: Table 1 . Expenditure on educational institutions as a percentage of GDP, by level of education (1995, 2000, 2005, 2010) Primary, secondary and postsecondary non-tertiary education Tertiary education Total all levels of education 1995 38 2000 2010 2005 26