On the political economy of educational vouchers

Abstract

Two significant challenges hamper the analyses of the collective choice of educational vouchers. One is the multi-dimensional choice set arising from the interdependence of the voucher, public education spending, and taxation. Second, 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 model provides a viable approach to overcome these hurdles. We provide a complete characterization of equilibria with an endogenous voucher. A voucher is adopted in political equilibrium provided the coefficient of variation of income is sufficiently small. We undertake a parallel quantitative analysis and we find that no voucher arises in equilibrium for the U.S. income distribution, which exhibits too much heterogeneity. For a tighter income distribution, including those in Douglas County, Colorado where a voucher was recently adopted, our model predicts a positive voucher. Public support for a not-too-large voucher arises because the cross subsidy to public school expenditure from those switching to private schools outweighs the subsidy to those who attend private school in the absence of a voucher.