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On Expanding Public Funding of Selective Colleges

Author

Listed:
  • Lutz Hendricks
  • Tatyana Koreshkova
  • Oksana Leukhina

Abstract

As college attainment expanded in the U.S., the fraction of public funds allocated to selective colleges and universities declined. Does this make sense from an efficiency standpoint, given that the majority of college entrants face the highest financial returns at selective colleges? Should the states instead be expanding access to high quality colleges? In this paper, we examine reallocating public funds from low quality to high quality colleges in a spending-neutral way. We find that this policy leads to a decline in aggregate earnings and intergenerational income mobility. Public spending on lower quality schools is well-justified.

Suggested Citation

  • Lutz Hendricks & Tatyana Koreshkova & Oksana Leukhina, 2025. "On Expanding Public Funding of Selective Colleges," Working Papers 2025-011, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:100019
    DOI: 10.20955/wp.2025.011
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    References listed on IDEAS

    as
    1. Dennis Epple & Richard Romano & Holger Sieg, 2006. "Admission, Tuition, and Financial Aid Policies in the Market for Higher Education," Econometrica, Econometric Society, vol. 74(4), pages 885-928, July.
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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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