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Subsidizing Enjoyable Education

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Author Info
Robert A. J. Dur ()
Amihai Glazer ()

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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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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1560.

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

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Related research
Keywords: tuition policy education subsidies self-selection

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Find related papers by JEL classification:
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
I20 - Health, Education, and Welfare - - Education - - - General

This paper has been announced in the following NEP Reports:

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