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The Out-of-State Tuition Distortion

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  • Brian G. Knight
  • Nathan M. Schiff

Abstract

Public universities in the United States typically charge much higher tuition to non-residents. Perhaps due, at least in part, to these differences in tuition, roughly 75 percent of students nationwide attend in-state institutions. While distinguishing between residents and non-residents is consistent with welfare maximization by state governments, it may lead to economic inefficiencies from a national perspective, with potential welfare gains associated with reducing the gap between in-state and out-of-state tuition. We first formalize this idea in a simple model. While a social planner maximizing national welfare does not distinguish between residents and non-residents, state governments set higher tuition for non-residents. The welfare gains from reducing this tuition gap can be characterized by a sufficient statistic relating out-of-state enrollment to the tuition gap. We then estimate this sufficient statistic via a border discontinuity design using data on the geographic distribution of student residences by institution.

Suggested Citation

  • Brian G. Knight & Nathan M. Schiff, 2016. "The Out-of-State Tuition Distortion," NBER Working Papers 22996, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22996
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • I2 - Health, Education, and Welfare - - Education

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