Question

Suppose that you had information on the impact of spending on public education on the productivity of the labour force. You also have information on how education spending reduces crime. Finally, you have estimates of how raising extra taxes creates distortions to labour supply. Explain precisely how you would use this sort of information to help determine optimal spending on public education. What extra information would be valuable?

Answer 1

With the given information input, it is known that education spending is going to make human capital investment. It increases the skills level, increases productivity and engages people in the work so that crime rate decreases. With this information, optimal spending will be decided with the level of marginal benefits created by the education spending and marginal cost of educational spending. When MB becomes equal to the MC, then the optimal spending level will be achieved.

The information that precisely quantifies the benefits created and cost incurred with educational spending. It will make the correct estimation of educational spending to maximize the benefits.