Drummond, H. Evan

English

Research Papers in Economics

SOUTHERN  JOURNAL  OF AGRICULTURAL  ECONOMICS  JULY,  1973
DISCUSSION:  THE DISTRIBUTION  OF THE COSTS
AND  BENEFITS  OF PUBLIC SCHOOLING
H. Evan Drummond
David  Holland  has provided  a  basic contribution  the  efficiency  with  which  available  resources  were
to  the  expanding  literature  concerned  with  the  allocated  among alternative  investment activities.
distributional  effects  of expenditures  on  education.  For the  past  decade  or  so,  most  studies  in this
He  has  ventured into  the relatively  untouched realm  area  have  refined  our  techniques  for  evaluating  the
of measuring  the  distrubutional  impact of tax  costs  efficiency  with  which  society  (and  the  individuals
and  expenditure  benefits  of  public  elementary,  within it)  invests in schooling. In general, the benefits
secondary  and  higher  education.  Our  fundamental  from  investments  in  human  capital  have  been
ignorance  of  the  equity  issues  involved  in  public  measured  as  the  present  value  of differential  future
education,  coupled  with  the  economic  and  social  lifetime  earnings.  In  spite  of  significant  analytical
importance  of  its  eventual  product,  provide  ample  progress,  many  conceptual  problems  remain  in  this
justification for continued research in this field.  body  of literature.  In the  first  place,  there  is  still a
Even though a valuable literature  review occupies  problem  of identifying  the  costs  and  benefits  that
a  significant  proportion  of  Holland's  paper,  I  will  accrue  to society  and those  that pertain to individual
limit my  comments to that portion  of the paper that  investment  decisions.  Obviously  the  two  are  not
is  original.  Reviewing  briefly,  Holland's  goal  is  to  mutually  exclusive.  A  further  complication  develops
determine  the  distribution  by  income  class  of  net  when  we  attempt  to  assign  the  full  benefits  of
benefits  resulting  from  education.  To  do  this,  he  education  to  the  student  without  regard  to  the
compares  the  average  per  family  tax  costs  for  the  benefits  received  by  parents  and  peers.  A  tentative
provision  of  education  with the  average  per  family  hypothesis  might  suggest  that  the  benefits  children
expenditures  made.  The  difference  between the  two  receive  from  their  education  relative  to the  benefits
is  the net subsidy received. Holland's basic conclusion  received  by  parents  varies  directly  with the  level of
is  that the  net  subsidies  from  lower  (as  opposed to  the schooling.
higher) education  are regressive.!  It has  been difficult  to correct  our estimates  for
My  comments begin with a brief review of earlier  innate  differences  in  student  capacity,  the  effect  of
work  in  the  broad  area  of  the  economics  of  peer  association,  teacher  quality,  and  other  factors
education.  The  earliest literature  emphasizes  the role  that might affect  the eventual benefit received by the
of education in economic growth.  In the most famous  student  [3].  Efforts  to  correct  for these  differences
study  of this  era,  Denison  [4,  p.  73]  found  "that  have  not  been  widely  accepted  [2].  Finally,  it  is
education  contributed  42  percent  of  the  1.60  somewhat  heroic  to project the benefits  that will be
percentage  point  growth  rate  in  product  per person  received by  a student  cohort  at some  future  point in
employed."  Subsequent studies by Schultz and others  time  based  on  present  earnings  differentials  of an
[1,  7,  9,  10]  reformulated  the  problem,  viewing  older  cohort.  Indeed,  it  is  the  inherent  supply  and
education  as  a  process  of  capital  formation.  The  demand  conditions  that  are being  developed  within
principal  economic problem during this era concerned  the  student  cohort  that  will  affect  earnings
H. Evan  Drummond  is assistant professor  of agricultural  economics at the University  of Georgia.
A  word  of warning  is  in order with respect  to the use of the terms "regressive"  and "progressive."  While Holland's use
of "regressive"  to describe  net subsidies  that are  "pro-poor"  is conceptually  impecable,  I find it to be quite uncomfortable.  It is
somehow difficult  to support a  "regressive"  policy even if it is consistent with my biases.
81differentials  in  the  future.  A  measure  of investment  students--the  poorest  of  the  poor  as  measured  by
efficiency in this sense has not been developed,  current  taxable  income.  Perhaps  more  meaningful
In  their  1969  article,  Hansen  and  Weisbrod  [5]  results  would  be forthcoming  if the present  value  of
extended  the  inquiry  beyond  consideration  of  the  lifetime  tax  payments  of  the  parents  (or  students)
efficiency  in human capital  investments  to the realm  were  compared  with  expected  lifetime  earnings  by
of  the  distributional  impacts  of  investments  or  lifetime  earnings classes.
expenditures  on  higher  education.  Holland  has  In  summary, expenditure  benefits as an  empirical
continued  this  line  of  research  by  extending  the  measure  of  educational  benefits  must  be  seriously
analysis  to  lower  education  in  Oklahoma.  While  the  questioned.  Certainly,  additional  refinements  are
results  of these  distributional  studies are  interesting,  necessary  before  any  substantive  distributional
their  lack  of  conceptual  conformity  to  previous  conclusions  can  be  sustained.  Adjustments  for  the
studies  must  be emphasized in order to avoid possible  quality  of education  is  suggested  as  a  first  priority.
misinterpretations.  There  remains  the  question  of  whether  or  not
In  the  first  place,  expenditure  benefits--the  investments  in  lower  education  are  efficient  within
concept  of returns  used  by  Holland-is  inconsistent  this  empirical  context.  It  would  seem  that  some
with  the  nature  of the  good  being  treated.  For  a  consideration  of  efficiency  within  an  empirical
social good (such as lower education), it is not the use  context  is a precondition  for a meaningful  evaluation
of that good  by income class  that must be examined  of distributional effects  [6  .
within  a  policy  framework;  but  instead,  it  is  the  Finally,  a  rewording  of  the  paper  would  be
availability  of  lower  education  that  is  critical.2 helpful.  I  find  "expenditure  benefits"  to  be  a
Presumably,  the availability  benefits  of schooling  are  value-charged  phrase.  "Net  tax  incidence"  might
proportional  so  long  as  educational quality  does not  better  describe  the  underlying  empirical  foundations
vary  by  income  class.  Within  this  framework,  the  of  Holland's  work.  There  seems  to  be  a  certain
interesting  policy  questions  are  those  of urban-rural  inclination  to consider  tax payments  as  a  "cost"  and
distribution  of net benefits,  inter-district  net benefit  adjusted  per  family  expenditures  as  a  "benefit."
variability,  etc.  [11].  Unless  possessed  of  remarkable  will,  the  reader  is
A  second  problem  with  Holland's  measure  of  thrown  into  the  conceptual  alley  of  analyzing  the
expenditure  benefits  is  that  it  avoids  the  important  results within  a  cost-benefit  framework.  While  this is
intergenerational  problems  associated  with  not the author's intention,  it  is certainly the reader's
investments  in  education.  Implicitly he  assumes that  proclivity to do so.
all benefits  and costs of lower education are  absorbed  I  think  it  essential  to  discuss  the  policy
by  the  family.  This  treatment  brings  us  full  circle  implications  of this paper.  However,  this task  will be
from  the  concept  of  education  as  an  investment  put  aside  until  such  time  as  we  agree  as  to  what
process  in which there is no consumption value  to the  distribution of net tax incidence is optimal. Until that
student. The  approach  taken by Grubb (he measured  time,  Holland  has  initiated  an  interesting  line  of
benefits  as  the  present  value  of  discounted  research.  He  should  be  commended  on  the
differential  lifetime  earnings)  finds  and  provides  a  development  of  a  procedure  that  allows  a  first
certain  conceptual  compatibility  with  previous  approximation  to  the  complexities  of  the
studies.  distributional  impact  of  investments  in  education.
A  third  and  final  remark  should  be  made  with  Nonetheless,  much  remains  to  be done.  Hopefully,
regard  to  the  comparison  of  expenditure  benefits  these  comments  will  suggest  some  new  avenues  of
with tax  costs for  a given  year by  the income  classes  research  that  can  complement  and/or  supplement
of  that  year.  In  the  field  of  education,  atemporal  these first steps into the distributional void.
distributional  studies may  provide  misleading  results.
One  must  wonder  if  it  is  valid  to  discuss  the
distributional  aspects  of an  investment  process  that
usually  spans  twelve  years  relative  to the income  of
the  parents  in  a  single  year.  For  instance,  many
children  receive  a  significant  portion  of their  lower
education  while  their  parents  are  graduate
2Lower  education  (or  at  least  elementary  education)  is  a  social  good  in  the  sense  that  within  the  law  it  must  be
consumed  in  equal  amounts  by  all.  The implied  social  preference  function  does not  necessarily  lead to an  efficient allocation  of
resources  from  a  private  point  of view.  Whether  or  not this is  the case  depends  on  the structure  of tax payments relative to the
income  elasticity  of social wants.  [  8,  chap.  1]
82REFERENCES
[  1]  Becker,  Gary S., Human Capital, Columbia  University Press,  1964.
[  2]  Bowles,  Samuel  and Henry M. Levin,  "The Determinants of Scholastic  Achievement--An Appraisal of Some
Recent  Evidence"  Journal  of  Human Resources, Winter,  1968.
[  3]  Coleman, James S., et. al., Equality of Educational  Opportunity, U.S. Office  of Education,  1966.
[  4]  Denison, Edward  F., The Sources of  Economic Growth in the United States and the Alternatives Before Us,
Committee  for Economic Development,  1962.
[  5]  Hansen,  W.  Lee,  and  Burton  A.  Weisbrod,  "The  Distribution  of Costs  and  Benefits  of Public  Higher
Education:  The Case of California," Journal  of Human Resources, Spring,  1969.
[  6]  Hartman,  Robert  W.,  "A  Comment  on  the  Pechman-Hansen  Weisbrod  Controversy,"  Journal of Human
Resources, Fall, 1970.
[  7]  Innes, Jon T.,  Paul  B.  Jacobson  and  Rolan J. Pellegrin,  The Economic Returns to Education:  A  Survey of
the Findings, University of Oregon,  1965.
[ 8]  Musgrave,  Richard  A., The Theory of  Public Finance, McGraw-Hill,  1959.
[ 9]  Schultz, Theodore  W., The Economic Value of  Education, Columbia University Press,  1963.
[10]  ,  "The  Rate  of  Return  in  Allocating  Investment  Resources  to  Education,"  Journal of Human
Resources, Summer,  1967.
[11]  Weisbrod,  Burton  A., External Benefits ofPublic Education, An Economic Analysis, Princeton University,
Industrial  Relations Section,  1964.
83I

DISCUSSION: THE DISTRIBUTION OF THE COSTS AND BENEFITS OF PUBLIC SCHOOLING

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