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The Political Economy of Post-Compulsory Education Policy with Endogenous Credit Constraints


  • Dan Anderberg
  • Alessandro Balestrino


Altruistic parents, who differ in income, make financial transfers to their children, who differ in ability. The children invest in post-compulsory education, subject to an endogenous credit constraint, and taking policy as given. There are two policy tools: a subsidy to those who participate in education and a proportional income tax. Not all children participate; a larger subsidy encourages participation, and a larger income tax discourages it. The parents, prior to making transfers, vote on policy. A voting equilibrium, if it exists, is such that voters in the two tails of the income distribution support a reduction, while the "middle-class" supports an expansion, of the education subsidy. Public support of education is a policy with regressive elements as it entails, among other things, a redistribution from the poor to the middle-earners. We characterise a local equilibrium analytically, verify its existence numerically, and finally perform a number of comparative statics exercises.

Suggested Citation

  • 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.
  • Handle: RePEc:ces:ceswps:_2304

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    References listed on IDEAS

    1. David M. Blau, 1999. "The Effect Of Income On Child Development," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 261-276, May.
    2. Dearden, Lorraine & Machin, Stephen & Reed, Howard, 1997. "Intergenerational Mobility in Britain," Economic Journal, Royal Economic Society, vol. 107(440), pages 47-66, January.
    3. Jo Blanden & Stephen Machin, 2013. "Educational Inequality and The Expansion of UK Higher Education," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(5), pages 578-596, November.
    4. Jo Blanden & Paul Gregg & Stephen Machin, 2003. "Changes in Educational Inequality," The Centre for Market and Public Organisation 03/079, Department of Economics, University of Bristol, UK.
    5. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
    6. Carneiro, Pedro & Heckman, James J., 2003. "Human Capital Policy," IZA Discussion Papers 821, Institute for the Study of Labor (IZA).
    7. Lance Lochner & Alexander Monge-Naranjo, 2002. "Human Capital Formation with Endogenous Credit Constraints," NBER Working Papers 8815, National Bureau of Economic Research, Inc.
    8. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    9. Raquel Fernandez & Richard Rogerson, 1995. "On the Political Economy of Education Subsidies," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 249-262.
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    Cited by:

    1. Rainald Borck & Silke Uebelmesser & Martin Wimbersky, 2015. "The Political Economics of Higher-Education Finance for Mobile Individuals," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 71(1), pages 82-105, March.
    2. Elena Del Rey & María Racionero, 2012. "Voting On Income‐Contingent Loans For Higher Education," The Economic Record, The Economic Society of Australia, vol. 88(s1), pages 38-50, June.
    3. Rainald Borck & Martin Wimbersky, 2014. "Political economics of higher education finance," Oxford Economic Papers, Oxford University Press, vol. 66(1), pages 115-139, January.
    4. Maria Racionero & Elena Del Rey, 2012. "Choosing the type of income-contingent loan: risk-sharing versus risk-pooling," CEPR Discussion Papers 671, Centre for Economic Policy Research, Research School of Economics, Australian National University.

    More about this item

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy


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