Education is often promoted as the solution to poverty in the developing world. Yet, fiscal discipline has led to reductions in public spending on education. We examine the poverty impacts of a cut in public subsidies to higher education, accompanied by corresponding tax cuts, in a general equilibrium framework applied to Vietnam. This policy is shown to have strong and complex impacts through various channels: a direct increase in the private costs of higher education, a reduction in education investments, a shift in the economy's skills mix in favor of unskilled workers, a rise in the wage premium for skilled workers, education and consumer price changes, etc. When all of these contrasting impacts are taken into account, we find that a higher education subsidy cut reduces welfare and increases poverty in Vietnam. While rural and agricultural households would benefit from this reform, urban and non-agricultural households would lose out.
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Find related papers by JEL classification: C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education I21 - Health, Education, and Welfare - - Education - - - Analysis of Education I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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