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Understanding the Income Gradient in College Attendance in Mexico: The Role of Heterogeneity in Expected Returns to College

  • Katja Kaufmann

    (Innocenzo Gasparini Institute for Economic Research (IGIER))

This paper studies the determinants of college attendance in Mexico. I use subjective quantitative expectations of future earnings to analyze both causes and implications of the steep income gradient in higher-education enrollment. I find that poor individuals require significantly higher expected returns to be induced to attend college. I then test predictions of a simple model of college attendance choice in the presence of credit constraints, using parental income and wealth as a proxy for the household's (unobserved) interest rate. I find that poor individuals with high expected returns are particularly responsive to changes in direct costs such as tuition, which is consistent with credit constraints playing an important role. To evaluate potential welfare implications of introducing a means-tested student loan program, I apply the Local Instrumental Variables approach of Heckman and Vytlacil to my model. I find that a sizeable fraction of poor individuals would change their decision in response to a reduction in interest rate, and that individuals at the margin have higher expected returns than the individuals already attending college. This suggests that policies such as government student loan programs could lead to large welfare gains.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-040.

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Date of creation: Jan 2008
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Handle: RePEc:sip:dpaper:07-040
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  1. Charles T. Clotfelter & Michael Rothschild, 1993. "Introduction to "Studies of Supply and Demand in Higher Education"," NBER Chapters, in: Studies of Supply and Demand in Higher Education, pages 1-10 National Bureau of Economic Research, Inc.
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  3. Heckman, James J. & Urzua, Sergio & Vytlacil, Edward, 2006. "Understanding Instrumental Variables in Models with Essential Heterogeneity," IZA Discussion Papers 2320, Institute for the Study of Labor (IZA).
  4. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
  5. Jere R. Behrman & Alejandro Gaviria & Miguel Székely, 2002. "Social Exclusion in Latin America: Introduction and Overview," Research Department Publications 3141, Inter-American Development Bank, Research Department.
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  8. Mario Padula & Luigi Pistaferri, 2001. "Education, Employment and Wage Risk," CSEF Working Papers 67, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Flavio Cunha & James J. Heckman & Salvador Navarro, 2005. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," NBER Working Papers 11024, National Bureau of Economic Research, Inc.
  10. 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.
  11. Kling, Jeffrey R, 2001. "Interpreting Instrumental Variables Estimates of the Returns to Schooling," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 358-64, July.
  12. Guiso, Luigi & Jappelli, Tullio & Pistaferri, Luigi, 2002. "An Empirical Analysis of Earnings and Employment Risk," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 241-53, April.
  13. Carneiro, Pedro & Heckman, James J., 2002. "The Evidence on Credit Constraints in Post-Secondary Schooling," IZA Discussion Papers 518, Institute for the Study of Labor (IZA).
  14. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  15. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
  16. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, 05.
  17. Christian Belzil & Jörgen Hansen, 2001. "Heterogeneous Returns to Human Capital and Dynamic Self-Selection," CIRANO Working Papers 2001s-10, CIRANO.
  18. Card, David, 2001. "Estimating the Return to Schooling: Progress on Some Persistent Econometric Problems," Econometrica, Econometric Society, vol. 69(5), pages 1127-60, September.
  19. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
  20. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
  21. Orazio Attanasio & Katja Kaufmann, 2009. "Educational Choices, Subjective Expectations, and Credit Constraints," NBER Working Papers 15087, National Bureau of Economic Research, Inc.
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