Inequality in Parental Transfers, Borrowing Constraints and Optimal Higher Education Subsidies

Youngmin Park

Staff Working Papers from Bank of Canada

Abstract: This paper studies optimal education subsidies when parental transfers are unequally distributed across students and cannot be publicly observed. After documenting substantial inequality in parental transfers among US college students with similar family resources, I examine its implications for how the education subsidy should vary with schooling level and family resources to minimize inefficiencies generated by borrowing constraints. Unobservable heterogeneity in parental transfers creates a force to heavily subsidize low schooling levels chosen by borrowingconstrained students with low parental transfers. This force is stronger for rich families, but it is weakened if heterogeneity in returns to schooling also leads to different schooling choices. These mechanisms are quantified using a calibrated model. Quantitative analysis suggests a reform that reallocates public spending toward the first two years of college. The reform also reduces the gap in subsidy amounts by parental income during early years of college.

Keywords: Fiscal Policy; Potential output; Productivity (search for similar items in EconPapers)
JEL-codes: D14 D61 D64 D82 I22 J24 (search for similar items in EconPapers)
Pages: 97 pages
Date: 2019-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.bankofcanada.ca/2019/02/staff-working-paper-2019-7/ Abstract (text/html)
https://www.bankofcanada.ca/wp-content/uploads/2019/02/swp2019-7.pdf Full text (application/pdf)

Related works:
Working Paper: Inequality in Parental Transfers, Borrowing Constraints, and Optimal Higher Education Subsidies (2019)
Working Paper: Inequality in Parental Transfers, Borrowing Constraints, and Optimal Higher Education Subsidies (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:19-7

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().