Financing Education for the Public Good: A New Strategy

Journal of Education Finance, 40:4 (Spring 2015), pp. 414-437

24 Pages Posted: 15 Nov 2015

See all articles by Walter W. McMahon

Walter W. McMahon

University of Illinois at Urbana-Champaign

Date Written: May 1, 2015


A new approach is suggested that depends on and measures how spending on higher and basic education is really an investment in the future, not consumption spending. This is a vital distinction because investment in human capital contributes to growth and to broader development beyond earnings growth, but also to the state’s fiscal health through higher state tax revenue and lower state Medicaid, child care, welfare, and criminal justice system costs as developed here. These are both state legislators’ direct concerns. But the criterion of the effect on the state’s fiscal health alone is a partial criterion, just as are the standard approaches that stress the needs to fund higher education costs and, for K-12, the concept of “adequacy”. So the paper also develops the standard earnings-based social rate of return to growth as well as the ‘total return to education’ (relative to full costs) for broader development as the basic education financing criteria for whether there is under or over-investment in education for efficient family and statewide growth and development.

Keywords: Education Finance, Education and Development, Social Rates of Return, Education Impacts on State Budgets, Private and Social Benefits, Externalities, Non-Monetary Benefits, Cost-Benefit Analysis, Education Finance Policy

JEL Classification: I23, I28, O15

Suggested Citation

McMahon, Walter W., Financing Education for the Public Good: A New Strategy (May 1, 2015). Journal of Education Finance, 40:4 (Spring 2015), pp. 414-437, Available at SSRN:

Walter W. McMahon (Contact Author)

University of Illinois at Urbana-Champaign ( email )

606 Lenox Court
208 David Kinley Hall
Champaign, IL 61822
United States
217-352-6721 (Phone)

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