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What You Don't Know Can't Help You: Lessons of Behavioural Economics for Tax-Based Student Aid


  • Christine Neill

    (Wilfrid Laurier University)


Canada’s federal and provincial governments spend a lot of money subsidizing postsecondary students. Tuition and education/textbook tax credits, in particular, cost the federal government around $1.6 billion in 2012 – a sum much greater than the net cost of the Canada Student Loan Program. These credits lower dramatically the cost of attending postsecondary education. Unlike other programs that support postsecondary education, there has not been a formal evaluation of the effectiveness of these tax measures, but there is good reason to conclude that they are poor policy. The immediate benefits of the credits go disproportionately to students from relatively well-off families, who are not relatively sensitive to the costs of postsecondary education, with students from lower-income families benefiting from them only after they have finished their education and have enough taxable income to claim the credit. Lessons from economics and from more recent innovations in behavioural economics emphasize that flaws in the design of postsecondary tax credits mean that they are unlikely to have any effect on youths’ decisions to undertake or cope with the costs of postsecondary education. A simple change to the tax credits – making them refundable instead of non-refundable – would go a long way to making them more efficient and equitable. Whereas a non-refundable tax credit can’t reduce the amount of tax owed to less than zero, a refundable tax credit can reduce your tax below zero and provide a refund. This change would provide a more immediate benefit to students from low-income families who need it most.

Suggested Citation

  • Christine Neill, 2013. "What You Don't Know Can't Help You: Lessons of Behavioural Economics for Tax-Based Student Aid," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 393, November.
  • Handle: RePEc:cdh:commen:393

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    References listed on IDEAS

    1. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
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    5. L. G. Hines, 1955. "Economics and the Public Interest," Land Economics, University of Wisconsin Press, vol. 31(2), pages 108-119.
    6. Susan Dynarski & Judith Scott-Clayton & Mark Wiederspan, 2013. "Simplifying Tax Incentives and Aid for College: Progress and Prospects," Tax Policy and the Economy, University of Chicago Press, vol. 27(1), pages 161-202.
    7. Michael B. Coelli, 2009. "Tuition fees and equality of university enrolment," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1072-1099, August.
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    Cited by:

    1. William B.P. Robson & Alexandre Laurin, 2015. "Challenges, Growth and Opportunity: A Shadow Federal Budget for 2015," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 423, April.

    More about this item


    Social Policy; Tuition; Higher Education;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy


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