EconPapers    
Economics at your fingertips  
 

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

Youngmin Park

No 623, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies optimal education subsidies when parental transfers for college education are unequally distributed across students and cannot be publicly observed. After documenting substantial inequality in the amount of parental transfers among American college students with similar observed family resources, I examine the implications of unobservable heterogeneity in parental transfers for efficient design of education subsidy policy that minimizes the distortions generated by borrowing constraints. When inequality in educational attainment is driven by differences in parental transfers, providing larger subsidy for lower level of schooling is optimal, because additional resources given to constrained students choosing low schooling levels reduce distortions. This force is weakened if unobservable heterogeneity in returns to schooling also leads to different schooling choices. To quantify these mechanisms, I build a model with endogenous parental transfers where inequality in parental transfers among students with similar parental economic resources and returns to education is determined by heterogeneity in parental altruism. The quantitative model is calibrated to the U.S. economy and used to solve for the optimal subsidy that may assign different amounts for each year of college and parental income quartile. The optimal policy subsidizes the first two years of college much more heavily than later years. The shift of public spending towards early years of college is more pronounced for higher parental income groups, generating little variation of subsidy amounts for the first two years of college across parental income.

New Economics Papers: this item is included in nep-dge and nep-edu
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://economicdynamics.org/meetpapers/2018/paper_623.pdf (application/pdf)

Related works:
Working Paper: Inequality in Parental Transfers, Borrowing Constraints and Optimal Higher Education Subsidies (2019) Downloads
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:red:sed018:623

Access Statistics for this paper

More papers in 2018 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2019-03-31
Handle: RePEc:red:sed018:623