IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Education policy and intergenerational transfers in equilibrium

  • Brant Abbott

    (Institute for Fiscal Studies)

  • Giovanni Gallipoli

    ()

    (Institute for Fiscal Studies and University of British Columbia)

  • Costas Meghir

    ()

    (Institute for Fiscal Studies and Yale University)

  • Gianluca Violante

    ()

    (Institute for Fiscal Studies and New York University)

This paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labour supply, and consumption/saving decisions. Altruistic parents make inter vivos transfers to their children. Labour supply during college, government grants and loans, as well as private loans, complement parental transfers as sources of funding for college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by two percentage points in the long-run. Any further relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibirum effects of expanding tuition grants (especially their need-based component) are sizable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ifs.org.uk/wps/wp201317.pdf
Download Restriction: no

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/17.

as
in new window

Length:
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:ifs:ifsewp:13/17
Contact details of provider: Postal: The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE
Phone: (+44) 020 7291 4800
Fax: (+44) 020 7323 4780
Web page: http://www.ifs.org.uk
Email:


More information through EDIRC

Order Information: Postal: The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Fatih Guvenen, 2007. "An Empirical Investigation of Labor Income Processes," NBER Working Papers 13394, National Bureau of Economic Research, Inc.
  2. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts," NBER Working Papers 6385, National Bureau of Economic Research, Inc.
  3. Michael P. Keane & Richard Rogerson, 2012. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Economics Papers 2012-W12, Economics Group, Nuffield College, University of Oxford.
  4. Willis, Robert J & Rosen, Sherwin, 1979. "Education and Self-Selection," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S7-36, October.
  5. Hamish Low & Costas Meghir & Luigi Pistaferri, 2006. "Wage risk and employment risk over the life cycle," IFS Working Papers W06/27, Institute for Fiscal Studies.
  6. Giovanni Gallipoli & Laura Turner, 2009. "Household Responses to Individual Shocks: Disability and Labor Supply," Working Papers 2009.97, Fondazione Eni Enrico Mattei.
  7. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
  8. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February.
  9. Stephen V. Cameron & James J. Heckman, 1998. "Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts of American Males," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 262-333, April.
  10. Carlos Garriga & Mark P. Keightley, 2007. "A general equilibrium theory of college with education subsidies, in-school labor supply, and borrowing constraints," Working Papers 2007-051, Federal Reserve Bank of St. Louis.
  11. repec:uwo:epuwoc:20024 is not listed on IDEAS
  12. Ionescu, Felicia & Simpson, Nicole, 2010. "Credit Scores and College Investment," Working Papers 2010-07, Department of Economics, Colgate University.
  13. Pedro Carneiro & James J. Heckman, 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," NBER Working Papers 9055, National Bureau of Economic Research, Inc.
  14. Donghoon Lee & Kenneth I. Wolpin, 2006. "Intersectoral Labor Mobility and the Growth of the Service Sector," Econometrica, Econometric Society, vol. 74(1), pages 1-46, 01.
  15. repec:mea:meawpa:13267 is not listed on IDEAS
  16. Laura Turner & Giovanni Gallipoli, 2010. "Household Responses to Individual Shocks: Disability, Labour Supply," 2010 Meeting Papers 110, Society for Economic Dynamics.
  17. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  18. Christoph Winter, 2009. "Accounting for the changing role of family income in determining college entry," IEW - Working Papers 402, Institute for Empirical Research in Economics - University of Zurich, revised Dec 2011.
  19. Elizabeth M. Caucutt & Lance Lochner, 2012. "Early and Late Human Capital Investments, Borrowing Constraints, and the Family," NBER Working Papers 18493, National Bureau of Economic Research, Inc.
  20. Kaplan, Greg & Violante, Giovanni L, 2011. "A Model of the Consumption Response to Fiscal Stimulus Payments," CEPR Discussion Papers 8562, C.E.P.R. Discussion Papers.
  21. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," NBER Working Papers 15483, National Bureau of Economic Research, Inc.
  22. Belley, Phillippe & Lochner, Lance, 2009. "The Changing Role of Family Income and Ability in Determining Educational Achievement," CLSSRN working papers clsrn_admin-2009-9, Vancouver School of Economics, revised 02 Feb 2009.
  23. Dirk Krueger & Alexander Ludwig, 2013. "Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation," PIER Working Paper Archive 13-035, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  24. Greg Kaplan, 2011. "Inequality and the Lifecycle," PIER Working Paper Archive 11-014, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  25. Diego Restuccia & Carlos Urrutia, 2002. "Intergenerational Persistence of Earnings: The Role of Early and College Education," Working Papers 0209, Centro de Investigacion Economica, ITAM.
  26. Cunha, Flavio & Heckman, James & Navarro, Salvador, 2004. "Separating uncertainty from heterogeneity in life cycle earnings," Working Paper Series 2005:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  27. Costas Meghir & Luigi Pistaferri, 2001. "Income variance dynamics and heterogenity," IFS Working Papers W01/07, Institute for Fiscal Studies.
  28. Kane, Thomas J, 1994. "College Entry by Blacks since 1970: The Role of College Costs, Family Background, and the Returns to Education," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 878-911, October.
  29. Matthew Johnson & Michael P. Keane, 2013. "A Dynamic Equilibrium Model of the US Wage Structure, 1968–1996," Journal of Labor Economics, University of Chicago Press, vol. 31(1), pages 1 - 49.
  30. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66, pages 281.
  31. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
  32. Robert M. Townsend & Kenichi Ueda, 2006. "Financial Deepening, Inequality, and Growth: A Model-Based Quantitative Evaluation -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 251-293.
  33. Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
  34. Claudia Goldin & Lawrence F. Katz, 2007. "The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005," NBER Working Papers 12984, National Bureau of Economic Research, Inc.
  35. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  36. William G. Gale & John Karl Scholz, 1991. "Intergenerational Transfers and the Accumulation of Wealth," UCLA Economics Working Papers 624, UCLA Department of Economics.
  37. Casey B. Mulligan, 1999. "Galton versus the Human Capital Approach to Inheritance," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S184-S224, December.
  38. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  39. Alan Blinder & Yoram Weiss, 1974. "Human Capital and Labor Supply: A Synthesis," Working Papers 435, Princeton University, Department of Economics, Industrial Relations Section..
  40. David Deming & Susan Dynarski, 2009. "Into College, Out of Poverty? Policies to Increase the Postsecondary Attainment of the Poor," NBER Working Papers 15387, National Bureau of Economic Research, Inc.
  41. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  42. Attanasio, Orazio P & Weber, Guglielmo, 1993. "Consumption Growth, the Interest Rate and Aggregation," Review of Economic Studies, Wiley Blackwell, vol. 60(3), pages 631-49, July.
  43. Laitner, John, 1992. "Random earnings differences, lifetime liquidity constraints, and altruistic intergenerational transfers," Journal of Economic Theory, Elsevier, vol. 58(2), pages 135-170, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ifs:ifsewp:13/17. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benita Rajania)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.