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Accounting for the changing role of family income in determining college entry

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  • Christoph Winter

Abstract

In recent decades, the US has experienced a widening of the college enrolment gap between rich and poor families. This is commonly interpreted as evidence for a tightening of borrowing constraints. This paper asks whether this is indeed the case. I present an incomplete-markets overlapping-generations model with college enrolment, in which altruistic parents provide transfers to their children. In the model the rise in earnings inequality observed between 1980 and 2000 acts as the driving force for generating the trends in the data. With the help of counterfactual experiments, I find that fraction of constrained households is much higher (24 instead of 8 percent) than indicated by the narrow enrolment gap in 1980. Contrary to what the development of the enrolment gap in the data suggests, the share of constrained households actually fell (to 18 percent) between 1980 and 2000. I show that altruism is important for explaining these findings.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 402.

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Date of creation: Jan 2009
Date of revision: Dec 2011
Handle: RePEc:zur:iewwpx:402

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Keywords: Dynamic general equilibrium models with overlapping generations; parental transfers; college enrolment and borrowing constraints; earnings inequality;

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Cited by:
  1. Brant Abbott & Giovanni Gallipoli & Costas Meghir & Giovanni L. Violante, 2013. "Education Policy and Intergenerational Transfers in Equilibrium," NBER Working Papers 18782, National Bureau of Economic Research, Inc.
  2. Florian Wendelspiess Chávez Juárez, 2011. "Intergenerational transmission of education - Uncovering the mechanisms behind high intergenerational correlations," Working Papers 234, ECINEQ, Society for the Study of Economic Inequality.
  3. Mariana Alfonso, 2009. "Credit Constraints and the Demand for Higher Education in Latin America," IDB Publications 9314, Inter-American Development Bank.
  4. Giovanni L. Violante & Costas Meghir & Giovanni Gallipoli, 2008. "Equilibrium Effects of Education Policies: a Quantitative Evaluation," 2008 Meeting Papers 868, Society for Economic Dynamics.
  5. Matthew T. Johnson, 2010. "Borrowing Constraints, College Enrollment, and Delayed Entry," Working Papers 2011-006, Human Capital and Economic Opportunity Working Group, revised Sep 2012.

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