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Inequality in Parental Transfers and Optimal Need-Based Financial Aid

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  • Youngmin Park

Abstract

This paper studies optimal need-based financial aid when parental transfers—unobserved by policymakers—vary across and within families of similar means. Using data on U.S. college students, I document substantial inequality in parental transfers, especially among wealthier families. I then analyze how this affects aid design aimed at reducing inefficiencies from borrowing constraints and the aid itself. Greater inequality in parental transfers among wealthier families weakens the progressivity of the aid, providing more relief to students with low transfers despite their affluent background. Moreover, aid shifts toward two-year colleges, which students with limited parental help are more likely to attend.

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  • Youngmin Park, 2019. "Inequality in Parental Transfers and Optimal Need-Based Financial Aid," Staff Working Papers 19-7, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-7
    DOI: 10.34989/swp-2019-7
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    Cited by:

    1. Rim Lahmandi-Ayed & Hejer Lasram & Didier Laussel, 2020. "Is partial privatization of universities a solution for higher education? A successive monopolies model," Working Papers hal-02988323, HAL.
    2. Elizabeth Caucutt & Lance Lochner & Joseph Mullins & Youngmin Park, 2020. "Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments," Staff Working Papers 20-36, Bank of Canada.
    3. Rim Lahmandi‐Ayed & Hejer Lasram & Didier Laussel, 2021. "Is partial privatization of universities a solution for higher education?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(6), pages 1174-1198, December.

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    More about this item

    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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