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Subsidizing Enjoyable Education

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Author Info

  • 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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Cited by:
  1. Amedeo Piolatto, 2011. "Financing public education: a political economy model with altruistic agents and retirement concerns," Working Papers. Serie AD 2011-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  2. Annette Alstadsæter, 2011. "Measuring the Consumption Value of Higher Education," CESifo Economic Studies, CESifo, vol. 57(3), pages 458-479, September.
  3. Carlo Altavilla & Paul De Grauwe, 2005. "Non-Linearities in the Relation between the Exchange Rate and its Fundamentals," CESifo Working Paper Series 1561, CESifo Group Munich.
  4. Piolatto, Amedeo, 2008. "Publicly provided private goods: education and selective vouchers," MPRA Paper 8934, University Library of Munich, Germany.

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