Higher education funding, welfare and inequality in equilibrium

Gustavo Mellior

Journal of Comparative Economics, 2025, vol. 53, issue 4, 1133-1172

Abstract: This paper analyses quantitatively the effect that higher education funding policies have on welfare and inequality. We evaluate five different higher education financing schemes with a heterogeneous agent model in continuous time. When educational costs are small, differences in outcomes across systems are negligible. As the cost of education and the share of debtors in society rises, it becomes preferable to fund education with subsidies, instead of student loans, as there is a pecuniary externality that arises with debt. Although subsidies can generate large steady state welfare gains, transition costs can be large enough to justify the status quo. The exception, full subsidy with graduate taxes, yields substantial welfare gains, even when taking into account transitional dynamics.

Keywords: Incomplete markets; Higher education funding; Human capital (search for similar items in EconPapers)
JEL-codes: D52 D58 E24 I22 I23 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Higher Education Funding, Welfare and Inequality in Equilibrium (2023)
Working Paper: Higher education funding, welfare and inequality in equilibrium (2020)
Working Paper: Higher education funding, welfare and inequality in equilibrium (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:53:y:2025:i:4:p:1133-1172

DOI: 10.1016/j.jce.2025.07.011

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