Liquidity Constraints, Fiscal Externalities, and Optimal Tuition Subsidies

American Economic Journal: Economic Policy, 2017, vol. 9, issue 4, 313-43

Abstract: A large literature focuses on two important rationales for government subsidies to college students: positive fiscal externalities from a larger tax base, and liquidity constraints. This paper provides a first attempt to gauge the relative importance of these mechanisms. I use US data in combination with two modeling approaches: calibration of a simple structural model of human capital accumulation, and a "sufficient statistics" approach. The resulting optimal subsidies are larger than median public tuition by about $3,000 per year. This finding is driven by fiscal externalities; optimal tuition subsidy policy is not sensitive to the extent of liquidity constraints.

JEL-codes: H52 H75 I22 I23 I28 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/pol.20150079
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Citations: View citations in EconPapers (4)

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Working Paper: Liquidity Constraints, Fiscal Externalities and Optimal Tuition Subsidies (2014)
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