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Public Funding of Higher Education

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  • Jean-Marie Viaene
  • Itzhak Zilcha

Abstract

Recent criticism from different sides has expressed the view that, with scarce resources, there is little justification for massive public funding of higher education. Central to the debate is the conjecture that colleges and universities use their resources inefficiently and focus insufficiently on their mission to expand students’ human potential. Our aim in this paper is to examine the theoretical premises of this conjecture in a small open economy and uncover the conditions under which public investment in higher education is efficient and desirable. We analyze non-stationary equilibria of an OLG economy, characterized by perfect capital mobility, intergenerational transfers and a hierarchical education system. The government uses income tax revenues to finance basic education and support higher education that generates skilled labor. Given this, the following issues are considered: (a) the impact of education and international markets on the equilibrium number of low-skilled and skilled workers in each generation; (b) the economic efficiency of public subsidies to higher education in generating skilled human capital; (c) the endogenous support for a government’s educational policies found in a political equilibrium.

Suggested Citation

  • Jean-Marie Viaene & Itzhak Zilcha, 2011. "Public Funding of Higher Education," CESifo Working Paper Series 3606, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3606
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    References listed on IDEAS

    as
    1. Bevia, Carmen & Iturbe-Ormaetxe, Inigo, 2002. " Redistribution and Subsidies for Higher Education," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(2), pages 321-340, June.
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    Citations

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    Cited by:

    1. Brezis, Elise S. & Hellier, Joël, 2018. "Social mobility at the top and the higher education system," European Journal of Political Economy, Elsevier, vol. 52(C), pages 36-54.
    2. repec:eee:reveco:v:54:y:2018:i:c:p:165-177 is not listed on IDEAS
    3. George Economides & Hyun Park & Apostolis Philippopoulos & Stelios Sakkas, 2015. "On the Composition of Public Spending and Taxes," CESifo Working Paper Series 5510, CESifo Group Munich.
    4. repec:scn:voprob:2017:i:3:p:37-82 is not listed on IDEAS
    5. Marconi, G. & de Grip, A., 2014. "Education and growth with learning by doing," Research Memorandum 032, Maastricht University, Graduate School of Business and Economics (GSBE).
    6. Elisa S. Brezis & Joel Hellier, 2016. "Social Mobility and Higher-Education Policy," Working Papers 095, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.

    More about this item

    Keywords

    hierarchical education; innate ability; capital mobility; education policy; low-skilled workers; skill formation;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education

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