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Understanding the Income Gradient in College Attendance in Mexico: The Role of Heterogeneity in Expected Returns to College

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  • Katja Kaufmann

    (Innocenzo Gasparini Institute for Economic Research (IGIER))

Abstract

This paper studies the determinants of college attendance in Mexico. I use subjective quantitative expectations of future earnings to analyze both causes and implications of the steep income gradient in higher-education enrollment. I find that poor individuals require significantly higher expected returns to be induced to attend college. I then test predictions of a simple model of college attendance choice in the presence of credit constraints, using parental income and wealth as a proxy for the household's (unobserved) interest rate. I find that poor individuals with high expected returns are particularly responsive to changes in direct costs such as tuition, which is consistent with credit constraints playing an important role. To evaluate potential welfare implications of introducing a means-tested student loan program, I apply the Local Instrumental Variables approach of Heckman and Vytlacil to my model. I find that a sizeable fraction of poor individuals would change their decision in response to a reduction in interest rate, and that individuals at the margin have higher expected returns than the individuals already attending college. This suggests that policies such as government student loan programs could lead to large welfare gains.

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Bibliographic Info

Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-040.

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Date of creation: Jan 2008
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Handle: RePEc:sip:dpaper:07-040

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Related research

Keywords: Educational choice; Credit Constraints; Subjective Expectations; Marginal Returns to Schooling; Local Instrumental Variables Approach; Mexico;

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References

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  1. Belzil, Christian & Hansen, Jörgen, 2001. "Heterogeneous Returns to Human Capital and Dynamic Self-Selection," IZA Discussion Papers 272, Institute for the Study of Labor (IZA).
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  18. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
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Citations

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Cited by:
  1. Paul Frijters & Luo Chuliang & Xin Meng, 2012. "Child Education and the Family Income Gradient in China," Discussion Papers Series 470, School of Economics, University of Queensland, Australia.
  2. Matthew Wiswall & Basit Zafar, 2011. "Belief updating among college students: evidence from experimental variation in information," Staff Reports 516, Federal Reserve Bank of New York.
  3. Filippin, Antonio & Paccagnella, Marco, 2012. "Family background, self-confidence and economic outcomes," Economics of Education Review, Elsevier, vol. 31(5), pages 824-834.
  4. Roland G. Fryer, Jr, 2013. "Information and Student Achievement: Evidence from a Cellular Phone Experiment," NBER Working Papers 19113, National Bureau of Economic Research, Inc.
  5. Delavande, Adeline & Giné, Xavier & McKenzie, David, 2011. "Measuring subjective expectations in developing countries: A critical review and new evidence," Journal of Development Economics, Elsevier, vol. 94(2), pages 151-163, March.
  6. Matthew Wiswall & Basit Zafar, 2011. "Determinants of college major choice: identification using an information experiment," Staff Reports 500, Federal Reserve Bank of New York.

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