Higher education subsidies and heterogeneity: a dynamic analysis
In this paper, we develop a simple dynamic general equilibrium framework that can be used to study issues in higher education policy. The model features heterogeneity in income of parents and academic ability of students. Liquidity constraints create persistence in educational attainment even when ability is independently distributed. A unique steady state with a positive fraction of college educated workers, or one with a development trap, or multiple steady states which feature both of these, can result in equilibrium. We add a government that is equipped with a simple tax scheme and calibrate the model to the US economy to get a benchmark for our policy analysis. The government can design a tax and subsidy scheme that guarantees equality of opportunity, but only at the expense of a decrease in the efficiency of utilization of education resources; the welfare gain is minimal. A policy that aims to maximize the fraction of college-educated labor, by sending as many children as possible to college, results in a big drop in the above-mentioned efficiency with little or no welfare gain. If the government has the political will to use any available signal on ability and provide merit-based aid, it can increase this efficiency with little decrease in welfare. Education subsidies may be a potent tool for countries that are caught in a development trap; a sufficient level of subsidy can cause the economy to emerge from the trap.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Elizabeth M. Caucutt & Selahattin Imrohoroglu & Krishna B. Kumar, 2000. "Does the progressivity of taxes matter for economic growth?," Discussion Paper / Institute for Empirical Macroeconomics 138, Federal Reserve Bank of Minneapolis.
- Galor, O. & Tsiddon, D., 1996.
"Technological Progress, Mobility and Economic Growth,"
13-96, Tel Aviv.
- Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-82, June.
- Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
- Raquel Fernandez & Richard Rogerson, 1994.
"On the political economy of education subsidies,"
185, Federal Reserve Bank of Minneapolis.
- Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
- Per Krusell & Anthony A. Smith & Jr., 1998.
"Income and Wealth Heterogeneity in the Macroeconomy,"
Journal of Political Economy,
University of Chicago Press, vol. 106(5), pages 867-896, October.
- Krusell, P & Smith Jr, A-A, 1995. "Income and Wealth Heterogeneity in the Macroeconomic," RCER Working Papers 399, University of Rochester - Center for Economic Research (RCER).
- Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity in the Macroeconomy," GSIA Working Papers 1997-37, Carnegie Mellon University, Tepper School of Business.
- Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
- Keane, Michael P & Wolpin, Kenneth I, 2001. "The Effect of Parental Transfers and Borrowing Constraints on Educational Attainment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1051-1103, November.
- Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-23, May.
- S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 2001.
"Efficient Investment in Children,"
RCER Working Papers
481, University of Rochester - Center for Economic Research (RCER).
- S. Rao Aiyagari & Jeremy Greenwood & Anath Seshardi, 2001. "Efficient investment in children," Working Paper 0105, Federal Reserve Bank of Cleveland.
- S. Rao Aiyagari & Jeremy Greenwood & Ananth Seshadri, 1999. "Efficient investment in children," Discussion Paper / Institute for Empirical Macroeconomics 132, Federal Reserve Bank of Minneapolis.
- Rogerson, Richard, 1988.
"Indivisible labor, lotteries and equilibrium,"
Journal of Monetary Economics,
Elsevier, vol. 21(1), pages 3-16, January.
- Stokey, Nancy L, 1996. " Free Trade, Factor Returns, and Factor Accumulation," Journal of Economic Growth, Springer, vol. 1(4), pages 421-47, December.
- Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:27:y:2003:i:8:p:1459-1502. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.