Efficiency and Equity Effects of Subsidies to Higher Education

Cecilia Garcia-Penalosa and Klaus Wälde

Oxford Economic Papers, 2000, vol. 52, issue 4, 702-22

Abstract: We compare the efficiency and equity effects of three financing systems for higher education: the traditional tax-subsidy system, where education subsidies are financed from general taxation; loan schemes; and a graduate tax. We find that efficiency and equity targets cannot be simultaneously achieved by the traditional tax-subsidy system, and that both loan schemes and a graduate tax fare better. When education outcomes are uncertain, the graduate tax is to be preferred to a pure loan scheme because of the greater insurance provided by the former and because it tends to be preferable to an income contingent loan system. Copyright 2000 by Oxford University Press.

Date: 2000
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