by Andrew Samwick
May 08, 2014
In the United States, parents send about 10 percent of elementary and secondary school-age children to private schools, which generates a “positive externality.” By paying out of pocket for their children’s private education, these families relieve a financial burden on local, state, and federal taxpayers, who would otherwise have to fund the public education of these children. To see the implications of this externality for tax policy, consider that the current arrangement is equivalent to the following: all families with school-age children receive vouchers in an amount equal to the per pupil expenditures in their school district. Most families take these vouchers to their local public schools and redeem them for educational services. The others return the vouchers to the school district unclaimed. To encourage this beneficial externality, policymakers could allow a federal (and possibly state) tax deduction for parents who send their children to private schools.