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Who Benefits From Student Aid? The Economic Incidence of Tax-Based Federal Student Aid

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  • Turner, Nick
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    Abstract

    Federal student aid is designed to lower the costs of postsecondary attendance, working to ensure that higher education is widely accessible. The effectiveness of these programs depends crucially on the existence of offsetting price changes. Contrary to the intention of policymakers, I find that schools fully counteract the cost reduction of tax-based aid by lowering institutional aid dollar-for-dollar. This finding implies that colleges and universities capture the financial benefits of tax-based aid at the expense of eligible students and families.

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    File URL: http://www.escholarship.org/uc/item/7g0888mj.pdf;origin=repeccitec
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    Bibliographic Info

    Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt7g0888mj.

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    Date of creation: 20 Oct 2010
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    Handle: RePEc:cdl:ucsdec:qt7g0888mj

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    Related research

    Keywords: federal aid; student aid; higher education; Social and Behavioral Sciences;

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    1. Rothschild, Michael & White, Lawrence J, 1995. "The Analytics of the Pricing of Higher Education and Other Services in Which the Customers Are Inputs," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 573-86, June.
    2. Susan Dynarski, 2004. "The New Merit Aid," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 63-100 National Bureau of Economic Research, Inc.
    3. Cutler, David M & Gruber, Jonathan, 1996. "Does Public Insurance Crowd Out Private Insurance?," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 391-430, May.
    4. Jesse Rothstein, 2009. "Is the EITC Equivalent to an NIT? Conditional Cash Transfers and Tax Incidence," NBER Working Papers 14966, National Bureau of Economic Research, Inc.
    5. Fullerton, Don & Metcalf, Gilbert E., 2002. "Tax incidence," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872 Elsevier.
    6. Gordon B. Dahl & Lance Lochner, 2011. "The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20113, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
    7. James R. Hines & Richard H. Thaler, 1995. "The Flypaper Effect," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 217-226, Fall.
    8. Larry D. Singell & Joe A. Stone, 2003. "For Whom the Pell Tolls: Market Power, Tuition Discrimination, and the Bennett Hypothesis," University of Oregon Economics Department Working Papers 2003-12, University of Oregon Economics Department.
    9. Bridget T. Long, 2004. "The Impact of Federal Tax Credits for Higher Education Expenses," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 101-168 National Bureau of Economic Research, Inc.
    10. Michael Rizzo & Ronald G. Ehrenberg, 2004. "Resident and Nonresident Tuition and Enrollment at Flagship State Universities," NBER Chapters, in: College Choices: The Economics of Where to Go, When to Go, and How to Pay For It, pages 303-354 National Bureau of Economic Research, Inc.
    11. Caroline M. Hoxby, 1998. "Tax Incentives for Higher Education," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 49-82 National Bureau of Economic Research, Inc.
    12. Charles T. Clotfelter, 1999. "The Familiar but Curious Economics of Higher Education: Introduction to a Symposium," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 3-12, Winter.
    13. Gabor Kezdi, 2005. "Robus Standard Error Estimation in Fixed-Effects Panel Models," Econometrics 0508018, EconWPA.
    14. Bridget Terry Long, 2003. "The Impact of Federal Tax Credits for Higher Education Expenses," NBER Working Papers 9553, National Bureau of Economic Research, Inc.
    15. Baicker, Katherine & Gordon, Nora, 2006. "The effect of state education finance reform on total local resources," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1519-1535, September.
    16. Gordon, Nora, 2004. "Do federal grants boost school spending? Evidence from Title I," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1771-1792, August.
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