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Fiscal and individual rates of return to university education with and without graduation

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  • Pfeiffer, Friedhelm
  • Stichnoth, Holger

Abstract

Based on a detailed model of the German tax-benefit system, this paper simulates private and fiscal returns to education for college graduates and college dropouts. Completing a five-year college degree is found to be associated with an internal rate of return (IRR) of 14.2% for gross earnings, 7.4% for disposable income, and 6.6% for the net fiscal contribution. Individuals who drop out of college after two years, and subsequently complete a three-year period of vocational training, are found to have negative IRRs: -0.5% for gross earnings and -5.9% for both disposable income and the net fiscal contribution. In a series of counterfactual experiments, we explore how these returns react to changes in gross earnings, expenditure per student, and the level of income tax payments.

Suggested Citation

  • Pfeiffer, Friedhelm & Stichnoth, Holger, 2020. "Fiscal and individual rates of return to university education with and without graduation," ZEW Discussion Papers 20-016, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:20016
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    References listed on IDEAS

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    1. Pfeiffer Friedhelm & Stichnoth Holger, 2015. "Fiskalische und individuelle Bildungsrenditen – aktuelle Befunde für Deutschland," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 16(4), pages 393-411, December.
    2. Ran Abramitzky & Victor Lavy, 2014. "How Responsive Is Investment in Schooling to Changes in Redistributive Policies and in Returns?," Econometrica, Econometric Society, vol. 82(4), pages 1241-1272, July.
    3. Courtioux, Pierre & Lignon, Vincent, 2016. "A good career or a good marriage: The returns of higher education in France," Economic Modelling, Elsevier, vol. 57(C), pages 221-237.
    4. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
    5. Stefanie Stantcheva, 2017. "Optimal Taxation and Human Capital Policies over the Life Cycle," Journal of Political Economy, University of Chicago Press, vol. 125(6), pages 1931-1990.
    6. Nathaniel Hendren & Ben Sprung-Keyser, 2020. "A Unified Welfare Analysis of Government Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(3), pages 1209-1318.
    7. Nathaniel Hendren & Ben Sprung-Keyser, 2020. "A Unified Welfare Analysis of Government Policies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(3), pages 1209-1318.
    8. Angel de la Fuente & Juan Francisco Jimeno, 2009. "The Private and Fiscal Returns to Schooling in the European Union," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1319-1360, December.
    9. Courtioux, Pierre & Gregoir, Stéphane & Houeto, Dede, 2014. "Modelling the distribution of returns on higher education: A microsimulation approach," Economic Modelling, Elsevier, vol. 38(C), pages 328-340.
    10. Walter Nonneman & Isabelle Cortens, 1997. "A note on the rate of return to investment in education in Belgium," Applied Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 167-171.
    11. Darragh Flannery & Cathal O'Donoghue, 2016. "Utilizing Microsimulation to Estimate the Private and Fiscal Returns to Education: Ireland 1987–2011," Manchester School, University of Manchester, vol. 84(1), pages 55-80, January.
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    Cited by:

    1. Berlingieri, Francesco & Diegmann, André & Sprietsma, Maresa, 2023. "Preferred field of study and academic performance," Economics of Education Review, Elsevier, vol. 95(C).
    2. Pfeiffer, Friedhelm & Stichnoth, Holger, 2021. "Bildungsinvestitionen optimieren," ZEW policy briefs 8/2021, ZEW - Leibniz Centre for European Economic Research.
    3. Tim Baalmann, 2024. "Health-Related Quality of Life, Success Probability and Students’ Dropout Intentions: Evidence from a German Longitudinal Study," Research in Higher Education, Springer;Association for Institutional Research, vol. 65(1), pages 153-180, February.
    4. Berlingieri, Francesco & Bolz, Theresa, 2020. "Earnings of university dropouts across Europe," ZEW Discussion Papers 20-085, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

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    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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