Beruflich Dokumente
Kultur Dokumente
a
Department of Economics, Indiana University, Bloomington, IN 47405, USA
The Eitan Berglas School of Economics, Tel-Aviv University, Ramat-Aviv, Tel-Aviv, 69978, Israel
Received 31 January 1997; received in revised form 30 September 1997; accepted 26 March 1998
Abstract
We study the role of governments allocation of tax revenues between two outlays: public
investment in education (a transfer to the young generation) and social security benefits to
the older generation. In an overlapping generations economy with pay-as-you-go social
security and altruistically motivated transfers from parents to children, we analyze how the
allocation of the tax revenues between the two outlays affects growth and welfare in
competitive equilibria: (a) we obtain comparative dynamics results for nonstationary
equilibria subject to a change in the allocation profile; (b) for stationary equilibria we show
that for a given allocation profile of the tax revenues, educational subsidies can either
increase the growth rate or decrease it depending on the parameters of the model
(preferences, production function and the tax rate); (c) if government seeks to allocate funds
in a way that maximizes the growth rate, we demonstrate that under some plausible
conditions it is not optimal to maintain pay-as-you-go social security; however, if parents
preferences combine strong concern for their retirement with significant degree of altruism
towards their children, then pay-as-you-go social security system does enhance growth and
welfare. 1999 Elsevier Science S.A. All rights reserved.
Keywords: Pay-as-you-go social security; Education vouchers; Altruism; Overlapping
generations
JEL classification: D90; D64; H55; I28
*Corresponding
author.
mkaganov@indiana.edu
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11-812-8553736;
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290
1. Introduction
The desirability of government intervention in the functioning of a competitive
economy arises in cases where the attained competitive equilibria are either
inefficient (due to externalities, for example) or fail to achieve certain important
social goals. In the twentieth century we witnessed worldwide phenomena of
intervention by governments in the provision of education and social security. In
most countries it is not only that a certain level of education is mandatory and is
provided by the government but also the higher education is heavily subsidized.
On the other hand, social security has been established in most developed
countries where it is financed by the pay-as-you-go system. It is commonly argued
that in both cases the competitive mechanism is unable to provide an efficient
equilibrium allocation (due to externalities or imperfect insurance markets) and a
desirable rate of growth.
Both social security and education can be viewed as a mechanism of intergenerational transfers. Although such transfers are altruistically motivated they have
significant effect on the growth process via their impact on the capital accumulation (see, for example, Feldstein, 1974; Kotlikoff and Summers, 1981; Modigliani,
1988; Bernheim, 1991) and the human capital accumulation (see, e.g., Lucas,
1988; Becker and Tomes, 1986; Gale and Scholz, 1994). However, it is known
that private altruistically driven decisions tend to yield inefficient competitive
equilibria. For example, this is the case when investments in childrens education
are determined, even partially, by altruistically-motivated parental decisions,
which ignore the positive impact that the human capital distribution has on the
aggregate production process (see, e.g., Eckstein and Zilcha, 1994). On the other
hand, social security may enhance welfare but may have an adverse effect on
output since it reduces savings (see, e.g., Feldstein, 1974; Laitner, 1988; Karni and
Zilcha, 1989).
We shall study the relationship between these two types of intergenerational
transfers in an overlapping generations model where the production factors are
physical capital and human capital. We consider individuals preferences with a
one-sided altruism of parents towards children. Namely, parents derive utility from
human capital of their children and hence invest during their productive period in
their childrens education. When parents retire, the labor income of their childrens
generation is taxed to finance their social security benefits. This link between the
human capital of children and the parents retirement benefits (in the form of
social security) is disregarded in each parental decision, but it is captured by the
governments social optimization. In the production of human capital we shall
treat the public investment and the private investment (made by the parents) as two
different inputs; thus the provision of education vouchers or subsidies, which has
been analyzed in recent years, becomes important from the efficiency point of
view (see for example, Glomm and Ravikumar, 1992, 1995; Fernandez and
Rogerson, 1993; Zhang, 1996).
291
We assume that government taxes labor income and allocates the revenues
between two outlays: public investment in educating the young generation (which
has consequences to the next periods aggregate output) and social security
benefits to the current retirees. This allocation rule of the tax revenues is taken to
be fixed over time once it is determined. Moreover, we shall distinguish a regime
where part of the governments education fund is allocated in the form of
education vouchers directly to the parents to be used in the education process of
their children and the other part is used by the government to cover public
education expenditures. In the alternative regime all the government education
fund is used directly in the education process. This paper demonstrates that there
are significant differences between these two (education-voucher and non-vouchers) regimes regarding the growth rate, and hence, the welfare implications.
We first study the nonstationary equilibria from a given initial capital stock and
show that, within a certain range, increasing the share assigned to education in the
allocation of government revenues results in higher economic growth in all
subsequent periods. Moreover, after some finite number of periods all generations
are better off in the new equilibrium.
We then proceed with the analysis of stationary equilibria where all the profiles
of resource allocation remain unchanged over time. For a given allocation rule of
the tax revenues between education and social security we compare the growth
rate in steady states with and without education vouchers. We find that, depending
on the parameters of the model, the growth rate in the steady state with educational
vouchers can be either smaller or larger than that in the steady state without
education subsidies. The magnitude of the altruism parameter (in the utility
function of the parents) plays an important role in such a comparison. (Abel and
Warshawsky, 1988 have estimated the altruism parameter for the joy of giving
bequest motive). We demonstrate that introducing education subsidies or vouchers
does not necessarily enhance economic growth (and consequently make consumers
better off). Finally, we consider the case where government can choose an optimal
allocation of funds between education and social security so as to maximize the
stationary growth rate of this economy. In this problem, government also has a
choice between the voucher and the non-voucher regimes. The main question here
is whether maintaining the social security program is compatible with the goal of
maximum growth rate. Under some conditions on the parameters of the model we
obtain that it is optimal to allocate funds for social security; however, under some
plausible conditions we also find that all tax revenues should be assigned to
education and hence the pay-as-you-go social security should not exist in the long
run.
The theoretical literature dealing with social security has concentrated on the
role played by these transfers in the aggregate saving of the economy (see, e.g.,
Feldstein, 1974; Hubbard and Judd, 1987), the financing system and the welfare
implications of social security (see, for example Samuelson, 1975; Diamond and
Mirrlees, 1978; Sheshinski and Weiss, 1981; Laitner, 1988; Sala-I-Martin, 1996),
292
its effect on income redistribution (see, e.g., Hu, 1978; Karni and Zilcha, 1989),
and its role in providing insurance due to imperfect insurance markets (see, Ulph
and Hemming, 1980; Eckstein et al., 1985). Most of the literature dealing with
public investment in education has analyzed its effects on growth, welfare and
income distribution. Levin (1997) studied the effectiveness of educational vouchers. Pecchenino and Pollard (1995) examined the effects of social security and
education on growth when education tax (imposed by federal government) is
determined through voting. They show that higher social security tax results in
lower capital accumulation and growth. In a model where government has no role
in education Zhang and Zhang (1996) relate social security to private investment
in education via its impact on fertility: under some conditions social security
lowers fertility and increases human capital investment and may enhance growth.
This possibility is consistent with our findings in Section 5 where we show that
maintaining social security results in higher growth when parents preferences
combine significant concern for their retirement income with strong degree of
altruism towards their children. Under such conditions, social security warrants the
parents future benefits resulting from the aggregate effect of human capital on
growth, and allows them to reallocate some of their income towards education of
their children, based on altruistic motives.
To the best of our knowledge, no paper in the literature considered the
relationship between these two public expenditures, education and social security,
which stems from the fact that both programs are financed by taxing labor
incomes. The allocation of tax revenues between these two important outlays,
which constitute different types of intergenerational transfers, needs to be
addressed and we consider our work as a first step. The main questions raised in
this paper are:
(a) Given some allocation of the tax revenues between these two provisions, is it
desirable to subsidize the private expenditures in education?
(b) If government wishes to maximize the stationary state growth rate and
chooses the optimal allocation of the tax revenues, is it desirable to use
education vouchers? Under what conditions the social security system should not
exist when such optimization criterion is used?
The paper is organized as follows. Section 2 describes the model and considers
nonstationary equilibria. Section 3 analyzes the stationary equilibria in this
framework with and without education vouchers. The comparison of the steady
state growth rates in the two regimes with and without education vouchers is
brought up in Section 4. In Section 5 it is assumed that government chooses the
allocation of tax funds optimally. Conditions under which it is optimal to
maintain the social security program in steady state are derived. Section 6 contains
a discussion of our results.
The proofs of some of the results have been omitted due to editorial
considerations. The appendix to the paper containing the proofs is included in the
mimeo version of this paper available upon request.
293
(1)
(2)
294
agents are young they are in their first period of adulthood and hence invest e t in
educating their offspring. This agent chooses his saving s t , and thus his
consumption when old c t0 , his expenses on educating his child e t , (thus his
consumption when young c ty ), in a way that maximizes his lifetime utility
function, namely:
max(c yt )a 1 (c t0 )a 2 (h t 11 )a 3
(3)
s.t. c yt 5 (1 2 t )w t h t 2 s t 2 e t $ 0
(4)
c t0 5 (1 1 r t 11 )s t 1 bt 11 $ 0
(5)
s t ,e t
a1 c t0 5 a2 (1 1 rt 11 )c yt , if st . 0
(6)
a1 c t0 $ a2 (1 1 rt 11 )c yt , if st 5 0
(7)
a1 h t11 5 a3 c yt H2 (ht , e t , x t ), if e t . 0
(8)
a1 h t11 $ a3 c yt H2 (ht , e t , x t ), if e t 5 0
(9)
or
or
(10)
bt 5 (1 2 g )t w t ht
(11)
Given the initial capital stock k 0 , initial h 0 , and parameters t and g we say that
hc yt , c 0t , k t , s t , e t , h t ; w t , r t j `t 50 is a competitive equilibrium (CE) if:
(i) For each generation t given (w t , r t 11 , bt 11 ) and its human capital h t the
y
0
optimum for the problem (1), (3)(5) is (c t , c t , s t , e t ).
(ii) Competitive Factors Markets:
1 1 r t 11 5 F1 (k t11 , h t11 ) t 5 0, 1, . . .
(12)
w t 5 F2 (k t , h t ) t 5 0, 1, 2 . . .
295
(13)
(14)
(iv) For all t, x t and bt are determined by (10) and (11) for the given wage
process.
Thus, in equilibrium, interest factors are equal to the marginal product of
capital, under our assumption that capital depreciates completely, and wage rate is
equated to the effective labor marginal product at each date.
Since we assume nondecreasing returns in the production of human capital, then
in (1), (3)(5) corner solution e t 50 is excluded. Also s t 50 cannot hold in CE
since it implies that bt 11 50 and therefore c t0 50. Thus, due to (12)(14)
conditions (6)(9) can be replaced by the following two conditions:
12d
a1 c t0 5 ba2 c tyd s td 21 h t11
(15)
a1 h t11 5 sa3 c yt h tz e ts 21 x ty
(16)
a1 e t 5 sa3 c ty
(17)
By (4), (5), (10)(17) we derive the following expressions for the optimal
savings and the private investment in education in equilibrium:
a2d (1 2 t )wt ht
h t 11 5 ]]]]]]
a2d 1 (a1 1 a3 s )A
(18)
a3 sA(1 2 t )wt ht
e t 5 ]]]]]]
a2d 1 (a1 1 a3 s )A
(19)
where A5d 1(12d )(12g )t. Observe that the above values naturally depend only
on relative sizes of a1 , a2 , a3 . The expression (19) combined with (10) and
h t 11 5h zt e st x yt yield:
h t 11 5 [a3 s (1 2 t )] st yg y
A
]]]]]]
a2d 1 (a1 1 a3 s )A
h zt (w t h t )s 1 y
(20)
296
g y /s A
c (g ) 5 ]]]]]]
a2d 1 (a1 1 a3 s )A
we can rewrite the above expression as:
h t 11 5 [a3 s (1 2 t )] st y (1 2 d )s 1 y (c (g ))s h zt q st 1 y
(21)
d
Now recalling that qt 11 5bs td h t12
11 we can apply condition (21) to obtain the
recursive relationship:
(22)
where
g y (12d ) As (12d )
h(g ) 5 ]]]]]]]]
[a2d 1 (a1 1 a3 s )A] d 1 s (12d )
M 5 b[a2d (1 2 t )] d [a3 s (1 2 t )] s ( 12d ) (1 2 d )d 1(s 1 y )( 12d )t y ( 12d ) .
The following Proposition characterizes the changes in the competitive equilibrium path resulting from an increase of the share of public expenditure on
education out of the total budget as of period t50.
Proposition 2.1 (Comparative Dynamics Result). There is a constant g #1
determined by the parameters d, t, s, y such that the following statements are true:
Let the economy be initially in CE with parameter g , g and let the government
increase at t50 the share of public expenditure on education to some g [(g, g ),
then the CE corresponding to g satisfies:
(i) Output qt and human capital h t are strictly higher in all subsequent periods,
t51, 2, . . . .
(ii) Old-age consumption c 0t of all generations t$0 will increase.
(iii) For some finite K the young-age consumption c yt increases for all t$K and
hence the welfare Ut of all generations t$K is strictly higher.
Remarks. (a) If the maximand of the function c (g ) introduced above is less than
1, then this maximand defines the number g in the Proposition, otherwise g 51.
More details are provided in the appendix to this paper.
(b) It is possible to strengthen part (iii) of this theorem as follows: If the
altruism is significant, i.e.,
297
(23)
(24)
(25)
e t 5 e*(1 2 t )w*h t
(26)
c yt 5 (1 2 s* 2 e*)(1 2 t )w*h t
(27)
298
a2d
s* 5 ]] e*
a3 sA
(28)
where as previously, A5d 1(12d )(12g )t. Then expression (27) can be rewritten as:
F S
D G
a2d
y
c t 5 1 2 1 1 ]] e* (1 2 t )w*h t
a3 s A
(29)
a1
y
c t 5 ]] e*(1 2 t )w*h t
sa3
(30)
a3 sA
e* 5 ]]]]]]
a2d 1 (a1 1 a3 s )A
a2d
s* 5 ]]]]]]
a2d 1 (a1 1 a3 s )A
(31)
Due to our choice of production function we have w*h t 5(12d )qt , hence
according to (25),
s t 5 s*(1 2 t )(1 2 d )qt
(32)
Considering the expression (21) for the level of human capital h t 11 and
adjusting it to our assumptions in (23) we obtain:
h t 11 5 [a3 s (1 2 t )] st 12 s (1 2 d )(c (g ))s qt
(33)
299
(35)
bt 5 (1 2 g )t w t ht
Given the total government budget t w t h t , its portion devoted to education outlays
is determined by g. It is reasonable to assume that g is not subject to adjustment
on a current basis. Government, however, has much greater flexibility in the
allocation of the total education outlays gt w t h t between direct funding of public
education x t and subsidy to private expenditures related to education vt , so as to
maximize the effect on the production of human capital given by the expression
s
h t 11 5 (vt 1 e t )s x 12
t
(36)
In other words, taking g as fixed and the parents private investment in education
e t as given, government will determine x t and vt as the maximizers of
s
max(vt 1 e t )s x 12
t
(37)
s.t. (35)
If problem (37) has interior solution then:
s x t 5 (1 2 s )(vt 1 e t )
(38)
x t 1 vt 5 gt w t h t
Alternatively, in the case of a corner solution there will be no vouchers, i.e., vt 50.
Let us analyze the agents optimization problem (3)-(5) using the production
function of human capital (36). Initially assume interior solutions, then
a1 c t0 5 a2 (1 1 rt 11 )c yt
(39)
a1 (e t 1 yt ) 5 a3 s c yt
(40)
300
12s
h t 11 5 (yt 1 e t ) ]]
s
12 s
(41)
(42)
vt 5 (1 2 x*)tg w*h t
(43)
e t 5 e*(1 2 t )w*h t
(44)
(45)
We now use this expression together with (43), (44) in (41) and obtain:
h t 11 5 s s (1 2 s )12 s [tg 1 e*(1 2 t )]w*h t
(46)
Using the above relationships one can obtain the following expressions for
optimal stationary private investment in education and the stationary growth factor
of the voucher economy u *.
(1 2 t )a3 A 2 a1 Atg 2 a2dtg
e* 5 ]]]]]]]]
(1 2 t )[(a1 1 a3 )A 1 a2d ]
(47)
(48)
tg
a3 . ]] (a1 1 a2d /A) ;m(
] t, g )
12t
(49)
301
(50)
Applying the first order optimality condition (39) for agents optimization
problem, which is not affected by the fact that e t 50, we get
a1 c 0t 5 a2 (1 1 r*)c yt
Recall the relationships of the model (4), (5), (10)(14) and use e t 50 to obtain,
since (11r*)s t 5d qt 11 , that:
a2d qt 11
a1 Aqt 11 5 ]]] [(1 2 t )(1 2 d )qt 2 s t ]
st
(51)
(52)
(53)
d
One can now substitute (52), (53) in qt 11 5bs td h t12
11 to find the stationary
0
growth factor u 5qt11 /qt which applies when e*50 is optimal, i.e., when
inequality (49) is violated:
(54)
One can observe that the value of u equals to u * given by (48) when a3 5m(
] t,
g ).
It now remains to analyze the situation when the optimum in the governments
voucher provision problem (37) is in the corner x*51, i.e., no vouchers are
provided. This is only possible when optimal private investment in education e t is
positive, so that the expression (47) for e* applies. Substituting it in (45) one
obtains:
(55)
This corresponds to the interior unique solution of (37) when the above
expression is less than 1. Otherwise x*51 is optimal. Therefore, by (55) x*51
occurs iff
a2d
tg
t, g )
a3 $ ]]]]]]] a1 1 ] ; m(
1 2 t 2 s 1 st 2 stg
A
(56)
302
(57)
u 0,
uy 5 u *,
u,
if a3 # m(
] t, g )
t, g )
if m(
t
,
g
)
#
a
3 # m(
]
if a3 $ m(t, g )
uy 5
u 0,
u *,
if a3 #
if a3 $
m(
] t, g )
m(
] t, g )
Thus the stationary growth rate with educational vouchers depends on the
degree of altruism represented by a3 in our model.
4. Steady state growth rates: the economy with and without vouchers
We shall now investigate the following important question: under what
conditions the provision of vouchers subsidizing private education may lead to
higher stationary growth rates or, alternatively, may reduce the growth rates. We
shall therefore compare the expression (34) for the stationary growth factor u in
the economy without vouchers, and the expressions given in Lemmas 3.1 and 3.2
for the stationary growth factor uy in the economy where educational vouchers are
being used by the government.
We shall impose the following restrictions on parameters of the model:
(58)
303
Remark. In our model 12d is the fraction of labor income in GNP. For the U.S.
economy, such fraction exceeds 0.7, so the condition d #0.4 appears reasonable,
as well as the restriction that tax rate t #0.4. Inequality s #0.5 means that
contribution of private education in overall production of human capital does not
exceed such contribution of public education.
Recall that in the economy with vouchers u * is the growth factor when e*.0,
while u 0 is the growth factor when e*50 is optimal. Note that inequalities (58)
guarantee condition (57), hence Lemma 3.1 applies under assumption (58).
The following propositions analyze the relationship between the growth rates in
stationary equilibria with and without vouchers. The degree of parents altruism a3
and the allocation parameter g play a major role. The next proposition provides a
characterization of the relationship between uy and u when a3 is extremely low.
Assume that (58) holds. There exists a positive number m 0 (t, g ),m(
] t, g ) such
that the growth factors satisfy:
0
Proposition 4.1. (i) uy 5u 0 ,u when m 0 (t, g ), a3 #m(
] t, g ); (ii) uy 5u .u when
0, a3 ,m 0 (t, g ). The number m 0 (t, g ) is strictly increasing in g.
We shall now extend the analysis to the case of higher parental altruism: a3 $m(
] t,
g ). We will need to consider the following value defined by parameters of the
model:
(1 2 d )(1 2 t )(1 2 s )
G 5 ]]]]]]
t [d 1 s (1 2 d )]
(59)
304
305
educational vouchers, i.e., the choice of regime is also included in this optimization. The tax rate, however, is assumed fixed.
We shall be primarily interested in the questions if and under what conditions
the optimal value of g, g max , is equal to 1 (i.e., it is not optimal to maintain the
social security program); alternatively, when g max ,1, i.e., under what conditions
it is optimal to have it. In order to obtain conditions that are economically easy to
interpret we shall assume throughout this section that condition (58) holds; thus
the results of Section 4 are valid.
The following two conditions are crucial for the answers to the above questions.
(1 2 s )d $ s (1 2 d )t
(60)
(a1 1 a3 s )d (1 2 s ) $ a2 [st (1 2 d ) 2 (1 2 s )d ]
(61)
Condition (60) is met when the tax rate t is relatively low. If (60) is satisfied,
then (61) holds automatically. Alternatively, when (60) is violated, (61) imposes
an upper bound on the relative weight of the parameter a2 the extent to which
the agents are concerned about their retirement income relative to other priorities.
Consider the steady state growth rate u of the non-voucher regime, as defined in
(34). The following facts are proved in the appendix.
Lemma 5.1. (i) If either (60 ) or (61 ) is satisfied then u / g .0. (ii) If both (60 )
and (61 ) are violated, then there is g0 [(0, 1) such that
u
u
] . 0 for g [ [0, g0 ) and ] , 0 for g [ (g0 , 1]
g
g
Consider now the steady state growth rate u * corresponding to the interior
solution in the regime with vouchers, as defined in (48).
Lemma 5.2. (i) u * is a strictly concave function of the variable g ;
H U J
u *
(ii) sign ]]
g
g 51
thereby
u *
]]
g
g 51
, 0,
(62)
(iii) Subject to the condition (62 ), there is g *[(0, 1) such that u *(g ), as a
function of g, has unique maximum at g 5g *.
306
Denote by g max the optimal value of g as discussed above. Recall the definitions
of the values m(
] t, g ), m(t, g ), m 0 (t, g ), m 1 (t, g ) introduced in Section 3 and
Section 4. The above lemmas lead to the following results (see appendix for
detailed proofs).
Let G be the value defined in (59). Assume first that G $1, which is true if the
tax rate t is relatively low.
Proposition 5.3. Let G $1, then the following is true:
(i) If either condition (60 ) or (61 ) is satisfied, then g max 51.
(ii) Let a3 #m 0 (t, g0 ), where g0 is as defined in Lemma 5.1. If condition (61 ) is
violated, then g max 51.
max
(iii) Let a3 $m(
] t, 1). If condition (61 ) is violated then g ,1.
According to the above statement (iii), it is optimal to maintain social security
in this case. To interpret these circumstances, observe that the violation of (61)
means that a2 is relatively large, i.e., retirement income has high priority. In this
situation, the provision of social security allows parents to spend more of their
resources on childrens education. This argument is true only if the altruism
parameter a3 also is sufficiently high. Indeed, this can be seen from the conditions
in (ii) where social security does not exist. Observe that according to (i) and (ii)
low levels of altruism make social security nonoptimal regardless of other
conditions.
Assume now that G ,1. Then, according to Proposition 4.3, provision of
vouchers, combined with some private investment in education is an optimal
regime for values of a3 in some interval. Therefore, Lemma 5.2 is relevant for this
situation.
Lemma 5.4. Let G ,1, and let the condition (61 ) be violated. Then inequality
(62 ) is true.
Recall the parameters g0 and g * defined, respectively, in Lemma 5.1.and
Lemma 5.2. Now we state:
Proposition 5.5. Let G ,1, then the following is true.
(i) Assume that condition (61 ) is satisfied and that condition (62 ) holds. Then
t, 1);
g max 5 1 if either a3 # m 1 (t, g *) or a3 $ m(
t, 1).
g max , 1, if m 1 (t, 1) # a3 , m(
(ii) If either condition (60 ) or condition (61 ) is satisfied, but (62 ) is violated,
then g max 51 regardless of the value of a3 .
(iii) If condition (61 ) is violated, then
307
6. Discussion
This paper studies the effects that allocation of governments funds between
education and social security has on the economys growth rate and welfare in the
long run. These two government outlays are financed by taxes on wage incomes
and are widespread in todays developed economies. This issue has not been
addressed in the literature although there are many papers studying, separately, the
effects of human capital accumulation and social security on economic growth and
welfare. Clearly, the interrelation between these two major public expenditures
exists and hence the issue of optimal allocation of funds is an important one. In
our framework, higher investment in education results in later periods in higher
aggregate output in this economy and therefore in higher social security benefits
(given a fixed tax rate). Thus, if government can choose the allocation of its funds
that maximizes the long-run growth rate (and hence the long-run welfare level),
then, under some conditions we may find that there is no room for social security
program financed by pay-as-you-go system. On the other hand, we have shown
that for some parameter values in the model, the existence of such social security
program enhances the economic growth. We have studied these conditions in
stationary equilibria assuming that in addition to funding public education
government can choose to subsidize private education (via vouchers). In this
analysis we have ignored the political constraints on implementing government
policies.
The issue of desirability of education vouchers has also been studied here for a
308
Acknowledgements
We are grateful to the anonymous referees for their stimulating comments and
suggestions which resulted in a significant improvement of the paper.
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