An examination of income and substitution effects of education and health expenditures

Public expenditures have income and substitution effects on households as well as taxes. If people work more due to public spending, this is called as income effect. If people are encouraged to work less due to public spending this is named as substitution effect. In this study, whether public education and public health spending cause income and substitution effects is examined. The data are obtained by questionnaire and examined by cross-table analysis with other statistical methods. The findings demonstrate that education spending causes income effect, while health care spending does not create income effect. A comparative analysis shows that the size of the income effect is greater than the substitution effect. The possible reasons of the findings are: people accept that the quality of private schools are better than public schools; the share of private education spending is higher than private health care spending in total private spending.