There are a number of threads about vouchers, some of which touch on economics. Most, however, are based on the overall pros / cons of a voucher system. Rather than try to hijack (probably unsuccessfully) more esteemed poster’s threads, I thought I’d start one here. Forgetting for the moment any arguments about the equality of vouchers or how good they are for parents, etc., I would like to spark a discussion on the economic effects of a nationwide voucher system. To keep it simple, assume that the basic voucher will give any parent a fifteen hundred dollar tax credit for sending their children to a private school. I know that Bush’s proposal is a bit different, so if you want to predict further conditions (it has to make it by congress, too) make them clear in your post.
Will the price of tuition rise, putting parents back in the same basic position they were before a voucher program took effect? This is a bit of basic supply and demand. If a large amount of consumers enter the market with a government subsidy, wouldn’t the demand curve shift out i.e. greater quantity and price? (of course the entire amount of the subsidy won’t be reflected in the shift, but these are minor perturbations of the general theory).
Will there be a significant growth in the private school industry? A subsidy could result in significant numbers of consumers entering the market. The supply of spots in classes is, at the moment, limited by different market conditions. Will there be a significant influx of new suppliers, shifting the supply curve shift out? Will this result in a new equilibrium with a greater quantity and a lower price than before the subsidy? How will these new suppliers effect the established schools?
If there is a new, large group of consumers in the private school market, are there other markets that will be effected by the amount of the subsidy? Will teacher’s salaries change with respect to the amount of the vouchers? Would the garment industry notice?
Thanks for your thoughts,
Rhythmdvl