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Life in shakles? The quantitative implications of reforming the educational financing system

Listed author(s):
  • Ben Heijdra

    (University of Groningen)

  • Fabian Kindermann

    (University of Bonn)

  • Laurie Reijnders

    (University of Groningen)

We conduct a quantitative analysis of educational financing systems in a stochastic overlapping generations model in which human capital can be enhanced through both formal schooling and learning-by-doing. The model is calibrated to the United States economy, including a stylized version of its student loan system. We find that moving to an income-contingent educational financing system, whereby transfers to students are financed from taxes on labor income, generates aggregate welfare gains. Such a system improves risk-sharing among college graduates and incentivizes individuals to obtain more education. These positive effects overturn the negative impact from labor supply distortions. Reforming the educational financing system towards income contingency, however, generates a considerable amount of transitional dynamics, so that welfare gains and losses are distributed unevenly across generations. (Copyright: Elsevier)

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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 25 (2017)
Issue (Month): (April)
Pages: 37-57

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Handle: RePEc:red:issued:16-86
DOI: 10.1016/
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Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA

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