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Should Higher Education Subsidies Depend on Parental Income?

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Abstract

In many countries, student grants, tuition fees, and subsidized loans depend on parental income. This paper examines the efficiency and distributional effects of such conditioning, and assesses whether it is optimal practice when the government wants to reduce after-tax income inequality in the most efficient manner. Increasing the mean level of education among the work-force compresses wage differentials by level of education and thereby the pre-tax income distribution. Hence, subsidizing education may be part of an optimal redistribution policy. However, education subsidies mainly benefit high-ability students, limiting their redistributive virtues. Conditioning education subsidies on parental income may enable the government to reduce inframarginal subsidies, mainly benefiting high-ability students, while preserving the marginal subsidy, and thus the favourable effect on the mean education level which leads to wage compression. Copyright 2004, Oxford University Press.

Suggested Citation

  • Robert Dur, 2004. "Should Higher Education Subsidies Depend on Parental Income?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 20(2), pages 284-297, Summer.
    • Handle: RePEc:oup:oxford:v:20:y:2004:i:2:p:284-297
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    Cited by:

    1. Tom McKenzie & Dirk Sliwka, 2011. "Universities as Stakeholders in their Students' Careers: On the Benefits of Graduate Taxes to Finance Higher Education," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 726-742, December.
    2. Daniel Montolio & Amedeo Piolatto & Luca Salvadori, 2022. "Financing public education when agents have retirement concerns," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1559-1580, October.
    3. Ludger Wößmann, 2008. "Efficiency and equity of European education and training policies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(2), pages 199-230, April.
    4. Rita Asplund & Oussama Ben Adbelkarim & Ali Skalli, 2008. "An equity perspective on access to, enrolment in and finance of tertiary education," Education Economics, Taylor & Francis Journals, vol. 16(3), pages 261-274.
    5. Dur, Robert & Glazer, Amihai, 2008. "Subsidizing Enjoyable Education," Labour Economics, Elsevier, vol. 15(5), pages 1023-1039, October.

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