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Voting On Income‐Contingent Loans For Higher Education

  • ELENA DEL REY
  • MARÍA RACIONERO

We consider risk-averse individuals who differ in two characteristics - ability to benefit from education and inherited wealth - and analyze higher education participation under two alternative financing schemes - tax subsidy and (risk-sharing) income-contingent loans. With decreasing absolute risk aversion, wealthier individuals are more likely to undertake higher education despite the fact that, according to the stylized financing schemes we consider, individuals do not pay any up-front financial cost of education. We then determine which financing scheme arises when individuals are allowed to vote between schemes. We show that the degree of risk aversion plays a crucial role in determining which financing scheme obtains a majority, and that the composition of the support group for each financing scheme can be of two different types.

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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2012.00801.x
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Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 88 (2012)
Issue (Month): s1 (06)
Pages: 38-50

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Handle: RePEc:bla:ecorec:v:88:y:2012:i:s1:p:38-50
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  1. Del Rey, Elena & Racionero, María, 2010. "Financing schemes for higher education," European Journal of Political Economy, Elsevier, vol. 26(1), pages 104-113, March.
  2. Bruce Chapman, 2005. "Income Contingent Loans for Higher Education: International Reform," CEPR Discussion Papers 491, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  3. Rainald Borck & Martin Wimbersky, 2009. "Political Economics of Higher Education Finance," CESifo Working Paper Series 2829, CESifo Group Munich.
  4. Dan Anderberg & Alessandro Balestrino, 2008. "The Political Economy of Post-Compulsory Education Policy with Endogenous Credit Constraints," CESifo Working Paper Series 2304, CESifo Group Munich.
  5. Garcia-Penalosa, Cecilia & Walde, Klaus, 2000. "Efficiency and Equity Effects of Subsidies to Higher Education," Oxford Economic Papers, Oxford University Press, vol. 52(4), pages 702-22, October.
  6. De Fraja, Gianni, 2001. "Education Policies: Equity, Efficiency and Voting Equilibrium," Economic Journal, Royal Economic Society, vol. 111(471), pages C104-19, May.
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