The Supply of Public Sector Services when They Include Quantity and Quality Dimensions

Most publicly provided services are multi-dimensional. This paper distinguishes between quantity and quality. In a model of majority voting with two competing political parties, the income effects with respect to quantity, quality, and other elements in the utility functions of the voters have ambiguous signs because the budget constraint of the public sector is non-linear. In addition, matching grants may have smaller effects than in traditional models with linear budget constraints. Data from Norwegian high schools are utilized in an empirical example. The income elasticity with respect to the number of students seems to be negative, the income elasticity of quality seems to be positive, and a matching grant related to the number of students has no effect on student enrollment.