Advanced Search
MyIDEAS: Login to save this paper or follow this series

Liquidity Constraints, Fiscal Externalities and Optimal Tuition Subsidies Optimal College Tuition Subsidies

Contents:

Author Info

  • Nicholas Lawson

    ()
    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Registered author(s):

    Abstract

    A large body of theoretical and empirical research focuses on two very different rationales for government subsidies to college students: positive fiscal externalities from greater human capital accumulation and a larger income tax base, and the existence of liquidity constraints among student borrowers. This paper provides a first attempt to gauge the relative importance of these two mechanisms. I use two different modelling approaches, both of which use US data on the effects of income and tuition subsidies on college enrollment to discipline the analysis: calibration of a simple structural model of human capital accumulation, and a "sufficient statistics" approach that employs behavioral elasticities within a social welfare optimality condition. The results imply optimal subsidies that are quite large, of a magnitude similar to median tuition at public universities. This finding is almost entirely driven by the fiscal externality channel, indicating that optimal tuition subsidy policy is not sensitive to the extent of liquidity constraints among students.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2014_-_nr_04_0.pdf#overlay-context=fr/recherche/documents-de-travail/liquidity-constraints-fiscal-externalities-and-optimal-tuition
    Download Restriction: no

    Bibliographic Info

    Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1404.

    as in new window
    Length: 38 pages
    Date of creation: 18 Mar 2014
    Date of revision: 18 Mar 2014
    Handle: RePEc:aim:wpaimx:1404

    Contact details of provider:
    Web page: http://www.amse-aixmarseille.fr/en
    More information through EDIRC

    Related research

    Keywords: college tuition subsidies; fiscal externality; liquidity constraints; sufficient statistics; free tuition;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Christoph Braun, 2010. "Optimal Taxation of Education with an Initial Endowment of Human Capital," Ruhr Economic Papers 0210, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    2. Ciccone Antonio & Peri Giovanni, 2007. "Identifying Human Capital Externalities. Theory with Applications," Working Papers 201098, Fundacion BBVA / BBVA Foundation.
    3. Carneiro, Pedro & Heckman, James J. & Vytlacil, Edward, 2009. "Evaluating Marginal Policy Changes and the Average Effect of Treatment for Individuals at the Margin," IZA Discussion Papers 4324, Institute for the Study of Labor (IZA).
    4. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," AMSE Working Papers 1357, Aix-Marseille School of Economics, Marseille, France, revised 21 Nov 2013.
    5. Ahmet Akyol & Kartik Artheya, 2003. "Risky higher education and subsidies," Working Paper 03-02, Federal Reserve Bank of Richmond.
    6. Philippe Belley & Lance Lochner, 2008. "The Changing Role of Family Income and Ability in Determining Educational Achievement," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20081, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
    7. Michael F. Lovenheim, 2011. "The Effect of Liquid Housing Wealth on College Enrollment," Journal of Labor Economics, University of Chicago Press, vol. 29(4), pages 741 - 771.
    8. Emmanuel Saez, 2000. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," NBER Working Papers 7708, National Bureau of Economic Research, Inc.
    9. Richter, Wolfram F. & Braun, Christoph, 2009. "Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth," IZA Discussion Papers 4629, Institute for the Study of Labor (IZA).
    10. Coelli, Michael B., 2011. "Parental job loss and the education enrollment of youth," Labour Economics, Elsevier, vol. 18(1), pages 25-35, January.
    11. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
    12. A. Lans Bovenberg & Bas Jacobs, 2005. "Redistribution and Education Subsidies are Siamese Twins," Tinbergen Institute Discussion Papers 05-036/3, Tinbergen Institute.
    13. Susan Dynarski, 2008. "Building the Stock of College-Educated Labor," Journal of Human Resources, University of Wisconsin Press, vol. 43(3), pages 576-610.
    14. Lans Bovenberg, A. & Jacobs, Bas, 2005. "Redistribution and education subsidies are Siamese twins," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2005-2035, December.
    15. Bohacek, Radim & Kapicka, Marek, 2008. "Optimal human capital policies," Journal of Monetary Economics, Elsevier, vol. 55(1), pages 1-16, January.
    16. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
    17. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
    18. Jon Gruber & Emmanuel Saez, 2000. "The Elasticity of Taxable Income: Evidence and Implications," NBER Working Papers 7512, National Bureau of Economic Research, Inc.
    19. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April.
    20. Matthew T. Johnson, 2010. "Borrowing Constraints, College Enrollment, and Delayed Entry," Working Papers 2011-006, Human Capital and Economic Opportunity Working Group, revised Sep 2012.
    21. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
    22. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," Working Papers halshs-00907807, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:aim:wpaimx:1404. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yves Doazan).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.