Fiscal externalities in higher education

Koen Declercq and Erwin Ooghe

No 659616, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: Fiscal externalities arise when subsidies to higher education raise future net fiscal revenues. We quantify the marginal fiscal recovery rate, i.e., the ratio of the change in net fiscal revenues and the change in subsidy costs caused by a small change in tuition subsidies. We find that this ratio is equal to 0.73 in Flanders (Belgium), meaning that 0.73 euro is recovered of a one euro increase in subsidies. We also compute the maximal tuition level as the tuition level where the marginal fiscal recovery rate is exactly equal to one. This tuition level is maximal in the sense that higher tuition levels are not only bad for students, but will also generate lower tax revenues. The maximal tuition level is around 2600 euro, which is almost three times as high as the current tuition level of 930 euro.

Keywords: higher education; fiscal externalities; marginal fiscal recovery rate; maximal tuition (search for similar items in EconPapers)
Pages: 48
Date: 2020
Note: paper number DPS 20.15
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Published in FEB Research Report Department of Economics

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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:659616

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