School Fees and Vouchers when Quality of Education Matters

The aim of this paper is to analyse the role that quantity and quality of education may play in the design of public policies. In our model, education does not generate externalities nor is considered as a merit good, but educated people enjoy a premium on their incomes. Households live in two areas with different socio-economic characteristics. Altruistic parents choose both the amount and the quality of schooling they want for their children. The government is assumed to provide a composite education service which has a quantity as well as a quality dimension, and is financed mainly via taxes on the income of the parents. We investigate the effects on altruistic parents' social welfare of balanced-budget policy reforms aimed at introducing or raising i) school fees, and ii) vouchers meant to compensate the costs of attending high-quality schools. We show that in general school fees improve parents' welfare while vouchers do not. Parents' altruism is not enough to support high levels of quantity and quality of education: it is not necessarily sufficient to induce them to choose full-time education for their children, and is never sufficient for them to support the introduction of the voucher for quality.