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**_Policy, Planning, and Research Working Paper Series_**

Israel is afitting place to compare the outcomes of academic andvocational schooling. More than half the Israeli secondary school pupils attend vocational schools or vocational streams in comprehensive schools.

A study based on 1983 Israeli census data shows vocational schooling to be more cost-effective than general academic education. In particular, vocational school completers who work in occupations related to their course of study earn about 10 percent more a year than their counterparts who either attended secondary schools or who attended vocational schools but were employed in occupations unrelated to their course of study.

Studies that show vocational schooling to be cost-ineffective compared with academic schools tend to concentrate on earnings, without taking into account such variables as the relevance of the type of occupation to the vocational studies pursued. Future evaluation studies should pay more attention not only to that variable but to issues of curriculum (including the type and scope of vocational studies).

This paper is a product of the Education and Employment Division, Population and Human Resources Department. Please contact Cynthia Cristobal, room S6-001, extension 33640.

# **143. Decentralization** In **Education:** An **Economic Perspective**

# Donald R. Winkler

_Some decisionmaking (about educational finance and teacher recruitment) should be handled at the local level and some (about school organization and curriculum) at the regional level. Problems of equity can be addressed through a system of central government grants._ Evaluating decentralization in terms of three economic criteria - social efficiency, technical efficiency, and equity - the author argues that some decisionmaking (about finance and teacher recruitment) should be provided for at the locallevel,andsome(aboutschoolorganization and curriculum) at the regional level.

A system of central government grants should be used to correct problems of equity and inefficiency inherent in a decentralized system.

Little is known about the economic and educational consequences of decentralization,despiteawidevarietyofcountry experiences. The effects of decentralization are difficult to isolate, so scholars have focused instead on issues ofimplementation.

Decentralization policies are most successfully implemented if:

* There is a tradition of self-reliance in local communities.

* Local governments or communities have their own sources of tax revenues and voluntary contributions.

* The pressure for decentralization originates in the community rather than with ministry planners.

* All important affected political groups, especially teachers, are involved in and informed about the developmentof decentralization plans.

* Administrative capacity at the local level either exists or is provided through training.

This paper is a product of the Education and Employment Division, Population and Human Resources Department. Please contact Cynthia Cristobal, room S6-001, extension 33640.

# **144. Product Differentiation and**

Foreign **Trade** In **CGE Models of** Small **Economies**

## Jaime de Melo and Sherman Robinson

_In_ a _simple, one-sector analytical model, the authors show that applying the same assumption about product differentiation to imports as to exportsgives rise to a wellbehaved, price-taking economy and normally shaped offer curves._ Inrecentyears,twoclassesofcomputable general equilibrium (CGE) trade models have been used to investigate external sector policies: single-country and multicountry trade models.

The single-country models have been used to analyze such external sector issues as the impact of restrictions on foreign trade or the impact of changes in net foreign transfers or world prices on the equilibrium of the real exchange rate. The multicountry models are typically concerned with resource allocation and the welfare implications of tariff reductions.

The authors examine the treatment ofexports andimports-and different assumptions about export demand and import supply behavior - in recent single-country CGE models of small economies. They present a simple, onesector analytical model that captures the majorfeatures of the multisector counterpart used in applied models.

They show that applying the same assumption aboutproduct differentiation to imports as to exports gives rise to a well-behaved, price-taking economy and normally shaped offer curves.

They illustrate the one-sector model - with anumerical example which shows using different trade substitution elasticities - the implications of the choice of weights used as a proxy for the domestic price index in computations of real exchange rate indices.

The model also shows the role of foreign trade elasticities in the popular Australian model - with traded and nontraded goods. Trade substitution elasticities on the import side play a crucial role in determining the direction of change in the real exchange rate during terms-oftrade perturbations.

This paper, forthcoming in the _Journal of International Economics,_ is a product of the Trade Policy Division, Country Economics Department. Please contact Karla Cabana, room N8-065, extension 61539.

# **145. Revenue-Ralsing Taxes: General Equilibrium Evaluation of Alternative Taxation** In **U.S. Petroleum industries**

Jaime de Melo, Julie Stanton, and David Tarr _Should the United States increase energy tariffs and taxes to help reduce the federal deficit? And if so, what combination of tariffs and taxes makes the most sense?_ Should the United States increase taxes and tariffs in the energy sector to reduce its federal deficit?

The authors used a twelve-sector general equilibrium model to estimate the fiscal effects, and the effects on welfare and employment, of

* A 25 percent import tax on imported crude oil. * A 15 percent excise tax on petroleum products.

* A combination of the two.

The excise tax would be the most efficient instrument for raising revenues.

The 25 percent import tariff would raise $7.3 billion in government revenues, while the 15 percent excise tax on