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Subsidizing Enjoyable Education

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  • Robert Dur
  • Amihai Glazer

Abstract

We explain why means-tested college tuition and means-tested government grants to college students can be efficient. The critical idea is that attending college is both an investment good and a consumption good. If education has a consumption benefit and tuition is uniform, the marginal rich student is less smart than some poor people who choose not to attend college, thus reducing the social returns to education and increasing the college’s cost of education. We find that competition among profit-maximizing colleges results in means-tested tuition. In addition, to maximize the social returns to education government should means-test grants. We thus provide a rationale for means-tested tuition and grants which relies neither on capital market imperfections nor on redistributive objectives.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1560.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1560

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Keywords: tuition policy; education subsidies; self-selection;

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References

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Citations

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Cited by:
  1. Amedeo Piolatto, 2009. "Education and selective vouchers," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2009-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Wei-Bin Zhang, 2013. "A Synthesis Of The Uzawa-Lucas Model With The Walrasian-General-Equilibrium And Neoclassical-Growth Theories," Economic Annals, Faculty of Economics, University of Belgrade, vol. 58(199), pages 7-38, October -.
  3. Kai Konrad & Stergios Skaperdas, 2012. "The market for protection and the origin of the state," Economic Theory, Springer, vol. 50(2), pages 417-443, June.
  4. Amedeo Piolatto, 2011. "Financing public education: a political economy model with altruistic agents and retirement concerns," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2011-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  5. Annette Alstadsæter, 2011. "Measuring the Consumption Value of Higher Education," CESifo Economic Studies, CESifo, CESifo, vol. 57(3), pages 458-479, September.

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