Journal Article

Should Higher Education Subsidies Depend on Parental Income?

Robert Dur, Coen Teulings and Thijs van Rens

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 20, issue 2, pages 284-297
Published in print June 2004 | ISSN: 0266-903X
Published online June 2004 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grh016
Should Higher Education Subsidies Depend on Parental Income?

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  • Economic Development and Growth
  • Public Economics
  • Political Economy
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In many countries, student grants, tuition fees, and subsidized loans depend on parental income. This paper examines the efficiency and distributional effects of such conditioning, and assesses whether it is optimal practice when the government wants to reduce after-tax income inequality in the most efficient manner. Increasing the mean level of education among the work-force compresses wage differentials by level of education and thereby the pre-tax income distribution. Hence, subsidizing education may be part of an optimal redistribution policy. However, education subsidies mainly benefit high-ability students, limiting their redistributive virtues. Conditioning education subsidies on parental income may enable the government to reduce inframarginal subsidies, mainly benefiting high-ability students, while preserving the marginal subsidy, and thus the favourable effect on the mean education level which leads to wage compression.

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Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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