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Submitted by Shanta on

Max, I too am learning from this discussion. There are two, separate justifications for a subsidy to education. One is the externality. The rationale here is efficiency (I am better off if you're educated, and vice-versa, so a private market will lead to a socially suboptimal level of education). This subsidy should go to everybody, rich and poor. The secondjustificaition is equity. The rationale here is that education is one of the most powerful ways of escaping poverty, but poor people may lack the means to send their children to school. Even if education were free, the opportunity cost of sending kids to school may be too high. But we should be careful about this subsidy. The state is intervening in an intra-household decision and requiring that the subsidy be used for education only. Why not give the household a cash transfer and let them decide on spending it on education, health, etc.? While there are arguments in favor of an education subsidy targeted at the poor, those arguments should be articulated, and assessed, before going ahead with the policy. The arguments usually have to do with imperfect capital markets (so households can't borrow to finance their children's education) or the fact that parents can't get their children to commit to taking care of them in old age, and so there will be a suboptimal investment in children's education. There are responses to these arguments (for instance, if there are imperfections in the capital market, you should fix these, rather than subsidize education). But on balance there are enough compelling arguments that I would say a subsidy to encourage poor people to send their kids to school is justified. Remember, though, that this begs the question of who should supply the education, which in my view is the bigger issue. If, by the subsidy, we are forcing poor children to get a low-quality education, we are not doing the best we can.