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On the financing of higher education, long run growth, and fiscal deficit

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  • Rolando A. Escobar-Posada; Goncalo Monteiro

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  • Goncalo Monteiro

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Abstract

Higher education is a channel through which countries produce and appropriate the necessary knowledge for enhancing productivity. However, its financing is a global challenge for governments. This paper considers the growth, welfare and public deficit implications of the way higher education is financed. We develop a two-sector growth model with a final output sector and a human capital sector, which require physical capital, human capital and public goods to produce output. The novelty is that public spending is financed using a flat income tax, and a user fee levied on private spending on public higher education making it, at least, partially excludable. We find that public spending on tertiary education increases growth, but “free” education is not part of a growthmaximizing policy. Instead, education must be at least partially financed by their receivers. Moreover, our numerical simulations show that a government that seeks growth maximization with a determined policy toward “free” universal higher education and low taxes may face a high déficit and low welfare. That is, the growth benefits do not offset the deficit increase and the welfare loss due to the high rate of education spending. The latter result may be affected if agents derive utility not only from consumption but also from quality leisure, where human capital enhances the utility derived from leisure. This topic is not addressed in the present paper, and would be a posible extension of the original model. ****** La educación superior es un canal a través del cual los países producen y se apropian del conocimiento necesario para incrementar la productividad. Sin embargo, su financiación es un reto para los gobiernos en el mundo. Este artículo considera las implicaciones en el crecimiento, el bienestar, y el déficit fiscal en cuanto a la forma de financiación de la educación superior. Se desarrolla un modelo de crecimiento de dos sectores, con un sector de bien final y un sector de capital humano, los cuales requieren capital físico, capital humano, y bienes públicos para producir. La novedad radica en la introducción de tarifas de usuario, además de impuestos de tasa y suma fija, impuestas sobre el gasto privado en educación superior, haciéndola, al menos en parte, excluíble. Dentro de los resultados se encuentra que el gasto público en educación superior incrementa el crecimiento; pero la educación “gratuita” no es parte de una política que intenta maximizar el crecimiento económico. Es decir, esta debe ser, al menos parcialmente, financiada por el beneficiario. Aún más, simulaciones realizadas muestran que un gobierno enfocado en maximizar el crecimiento, y con una política orientada hacia una educación superior “gratuita” y universal, podría enfrentar un alto déficit y un bajo bienestar. Esto implica que los beneficios obtenidos de un mayor crecimiento no equilibran el incremento en el déficit y la pérdida de bienestar debidos al mayor gasto en educación superior. Este último resultado puede verse afectado si los agentes derivan utilidad no solo del consumo sino también de la calidad del ocio, donde el capital humano incrementa la utilidad derivada del tiempo de ocio. Este tema no se estudia en el presente artículo pero podría ser considerado como una extensión del modelo original.

Suggested Citation

  • Rolando A. Escobar-Posada; Goncalo Monteiro & Goncalo Monteiro, 2017. "On the financing of higher education, long run growth, and fiscal deficit," Vniversitas Económica 015930, Universidad Javeriana - Bogotá.
  • Handle: RePEc:col:000416:015930
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    Keywords

    Excludable public inputs; financing of higher education; fiscal policy; growth******Bines públicos excluíbles; financiación de la educación superior; política fiscal; crecimiento económico.;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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