Higher Education: Subsidizing Tuition versus Subsidizing Student Loans

We use a simple two‐period equilibrium framework to explore the effects of two different subsidization regimes for higher education on the formation of human capital and on the distribution of incomes. Individuals finance their investments in higher education through income‐contingent education loans as well as subsidies from the government. The subsidy is tax‐financed. We compare an egalitarian subsidy scheme, which reduces by a uniform amount the tuition charged to students, with a student loan subsidy which is proportional to the student's debt service obligation. We show that both types of subsidies reduce the economy‐wide underinvestment in higher education and lead to a more equal income distribution. Furthermore, according to some social welfare criterion, the student loan subsidy regime dominates the tuition subsidy regime if the subsidy level is predetermined, while the converse is true if the subsidy level constitutes a choice variable of the government.     

农业补贴对农村金融市场的“挤出效应”——理论分析与实证检验

针对我国农村金融机构年贷款增长率远低于政府农业年度补贴增长率的现实,本文构建一个理论分析框架,并基于农户调研数据进行实证分析。研究发现,农业补贴依次对非正规金融市场和正规金融市场形成挤出效应;政府提高贷款利息虽可压缩非正规金融市场的生存空间,但却会引致农户福利流失;非挂钩性农业补贴会强化(弱化)非正规金融市场(正规金融市场)的挤出效应。因而,政府不应单一地寄希望于制度创新,而应更多地关注农业补贴对农户借贷决策行为的影响。     

Subsidizing heterogeneous higher education systems

In many countries, there is an ongoing debate on the public funding of the higher education (HE) system. Our goal is to examine the theoretical justification for the establishment of HE institutions and analyze the self-selection of students under different policies of student subsidies. We study nonstationary equilibria of an overlapping-generation economy in a hierarchical education system. Given the capacity constraints of Universities, we explore the impact of adding new institutions, to be called Colleges, to the HE system, focusing on three issues. Given that Colleges are less productive and less selective than Universities: (a) Should the government establish Colleges? (b) Should the government divert funds from Universities to Colleges? On the basis of long-run economic growth considerations, we obtain positive answers to both questions. (c) Then, we compare several policies of student subsidies across the board. Our results suggest that much caution is needed in the implementation of student subsidies. Specifically, targeting subsidies to the highly-ranked students in each institution may distort their self-selection across institutions and downgrade the human capital accumulation in the economy. To offset this distortion in the demand for HE it may be useful to target subsidies to the low-ranked students in each institution. Our model also accounts for several stylized facts over time: (1) the increase in the number of institutions and students, (2) the decline in College admission standards, and (3) the decline in public budget per student and the corresponding increase in out-of-pocket student payments.     

Financing Tertiary Education: An Examination of the Issues

The subsidies provided to the tertiary sector in Australia are more generous than those offered in most other advanced countries and most other industries. Evaluated using the criteria of economic efficiency, equity and consistency with the stated aims for the tertiary sector, these subsidies do not appear to be given for the right reasons. It can therefore be argued that there is justification for the imposition of tuition fees and for consideration of loans as a method of student finance. Overseas experience with loan finance is reasonably encouraging. Income contingent loans have been advanced as a viable means of perfecting the market for investment in human capital and as a form of profit sharing in which taxpayers share in both the costs and benefits of the educational investments of a nation's youth. Many standard arguments against loan finance, such as their disadvantaging lowincome groups and their constituting a negative dowry for female students, do not stand up to close scrutiny of the empirical evidence. The gradual introduction of a student loans scheme characterised by a high degree of income contingency, lengthy repayment periods, decreasing marginal tax rates per unit of debt, and moderate interest rate subsidies, appears to have considerable merit as a means of passing on to graduates part of the cost of the expensive service they now receive largely for free.     

中国金融抑制问题的政治经济学

本文从利益集团理论的视角对中国金融抑制问题给出了一个政治经济学解释,认为中国金融抑制的制度安排内生于给予改革当中利益受损集团金融补贴的需要,为了维护转轨时期的社会稳定,降低改革成本,在财政能力持续下降的情况下,中央政府通过加强对金融体系的控制,以利差租金和货币发行收益为主要路径向国有企业、政府财政提供金融补贴。但近年来,随着居民收入在国民收入分配中所占比例的下降,由金融抑制引发的社会风险的累积、金融效率损失等问题使得中国如果继续维持金融抑制政策将产生巨大的社会成本和效率损失。     

ATTITUDES TOWARD RISK AND SOCIOECONOMIC FACTORS RELATED TO EDUCATIONAL LOANS

We explore the relationship between willingness to take financial risk and the probability of taking out a loan for educational purposes as well as the influence of risk attitudes on the size of the loan using data drawn from the U.S. Survey of Consumer Finances. The findings suggest a positive relationship between individuals' willingness to take financial risk and the probability of taking out a loan for educational purposes. Similarly, individuals' willingness to take financial risk appears to have an important relationship with the size of the educational loan. The findings suggest that non‐white individuals and females are less likely to finance education through loans which could potentially increase inequalities in education and income if such individuals are deterred from investing in human capital. (JEL I22, I23)     

“PAY IT FORWARD” AND HIGHER EDUCATION SUBSIDIES: A MEDIAN VOTER MODEL

Since 2012, at least 24 states have considered legislation on Pay It Forward (PIF) models of higher education finance (which enable students to pay the price of college upon departure from an institution, as opposed to paying upfront tuition). This paper proposes a theoretical model of PIF policies within a framework in which voters belonging to different income groups vote over the level of subsidies to higher education. We analyze the impact of two types of potential PIF policies—a deferred tuition approach and an income share approach—on college access and on voting equilibria over subsidy levels. The results show that college access is enhanced by PIF policies. The equilibrium level of subsidies depends crucially on the pattern of income distribution, in particular on the relationship between mean income and the income of the median income group, and on whether higher education widens or narrows the distribution of income. We show that the equilibrium level of subsidies to higher education will not necessarily decline under PIF, and may increase in some circumstances due to changes in college access for low‐income groups. (JEL I22, I23)     

The lack of loan aversion among Canadian high school students

Evidence is presented on the factors that influence take‐up for postsecondary education financing (loans or grants) for high school students. Results show several factors influence the students' decisions about taking loans or grants but the most prominent influence was the price of educational subsidy. A total of 1,248 high school students across Canada participated. Prices for the grants and loans overlapped substantially in order to more clearly distinguish the impact of loan aversion on the decision to take up financial assistance to pursue PSE. The study featured paid experimental decisions (ranging from $25 to $700 in cash and from $500 to $4,000 in education financing), a numeracy assessment, a student survey and a parental telephone survey. The targeted sample included at‐risk high school students: low SES levels, First Nations and first generation students. Participants were marginally sensitive to the form of financing (grant or loan), with no evidence of systematic loan aversion being detected.     

Education policy and inequality: A political economy approach

Regression results show that more unequal societies tend to spend comparatively more on higher levels of education. In a two-period model with heterogeneous agents, this paper investigates the political determinants of this bias. In the first period, public education is financed by the incumbent government by issuing bonds. Investments in basic and higher education have conflicting effects on future labour income distribution and net returns to these investments depend on the tax and transfers system being selected in the following period through the democratic process. Our idea is that public investment in basic education, by decreasing future labour income inequality, may induce future policy-makers to redistribute resources through financial rents taxation, thus making unfeasible the issuing of debt to finance basic education. This will be the more probable the greater wealth inequality is.     

Optimal mixed taxation,credit constraints,and the timing of income tax reporting

We study optimal income and commodity tax policy with credit‐constrained low‐income households. Workers receive an even flow of income during the tax year, but report their incomes and make tax payments (receive transfers) at the end of the year. They spend their disposable income on multiple commodities over the year. We show that differentiated subsidies on commodities can be optimal even if the Atkinson–Stiglitz Theorem conditions apply. When the optimal policy leaves low‐income households with binding credit constraints, it may be optimal to subsidize differentially the good that they consume in higher proportion. Uniform subsidies would also relax the credit constraint, but would be more costly to the government since they would equally benefit unconstrained households. Numerical examples suggest that commodity tax differentiation increases with basic needs and with the interest rate at which government borrows.     

Fiscal Incidence in Ghana

We use methods developed by the Commitment to Equity Institute to assess the effects of government taxation, social spending and indirect subsidies on poverty and inequality in Ghana. We also simulate several policy reforms to assess their distributional consequences. Results show that, although the country has some very progressive taxes and well‐targeted expenditures, the extent of fiscal redistribution is small, but about what one would expect given Ghana's income level and relatively low initial inequality. Results for poverty reduction are less encouraging: were it not for the in‐kind benefits from health and education spending, the overall effect of government spending and taxation would actually increase poverty in Ghana. Eliminating energy subsidies and at the same time reallocating part of the savings to well‐targeted transfer programs could lower the fiscal deficit while reducing inequality and protecting the poor.     

Redistribution and education subsidies are Siamese twins

We develop models of optimal linear and non-linear income taxation with endogenous human capital formation to explore optimal education subsidies. Optimal subsidies on education ensure efficiency in human capital accumulation and thus play an important role in alleviating the tax distortions on learning induced by redistributive policies. If the government cannot verify all investments in human capital, education policy offsets some but not all tax-induced distortions on learning. Non-pecuniary educational costs (benefits) may increase (decrease) subsidies on education, especially if they are complementary to work effort.     

Taxation of International Private Capital Flows and Securities Transactions in Developing Countries: Do Public Finance Considerations Augment the Macroeconomic Dividends?

This paper examines policies to tax international private capital flows and securities transactions in developing countries. Many recent studies focus on the macroeconomic dividends associated with these policies (namely, their contribution to macroeconomic and financial stability and lengthened investor time horizons). In this paper I explore whether the potential of these policies to raise much‐needed tax revenues in developing countries augments their well‐known macroeconomic benefits. To my knowledge, there has been no effort to examine systematically the public finance issues related to the taxation of international private capital flows or securities transactions in the developing country context. I conclude that the public finance implications of these policies in middle‐income developing countries offers additional support to the macroeconomic case for them. To different degrees, taxation of international private capital flows and securities transactions has the potential to raise modest revenues in middle‐income countries. However, far more important is the potential of these policies to offer valuable macroeconomic dividends on the national level. These national macroeconomic dividends have the potential to bear fruit globally. This is because experiences with financial contagion over the last decade suggest that global financial stability can be enhanced via the promotion of domestic financial stability in developing countries.     

高校助学贷款政策与实施效应相关性研究——以湖南省为例

利用分层抽样方法从部分湖南省高校2004到2008年的助学贷款数据中选取4070个样本,利用SPSS软件分析样本中贷款利率、期限及还款程序、生源地和各学科门类学费等自变量与贷款金额、人数、次数、年限、提前还款与违约率等因变量的相关性。由此建议在目前的政策环境下,推进重点地区生源地贷款与鼓励学生回家乡就业相结合、增加艰苦专业的学生补贴,制定均衡的利率政策,优化贷款程序等可改善国家助学贷款政策的实施效应,从而为助学贷款政策的完善提供一种新的思路。     

An Analysis of a Rules-based Approach to Disciplining Export Credits in Agriculture

ABSTRACT

This paper examines the comparative static effects of rules-based disciplines for government supported export credit arrangements. The arrangements provide traders in the country offering the guarantees more favourable borrowing conditions. This may provide an advantage relative to rival exporters since the supported trader may offer better financial terms to importers. Rules that discipline implicit interest rate subsidies are appropriate when an importing country does not face liquidity constraints when borrowing. However, these rules may not be appropriate with liquidity constraints because of the potential for additionality and benefits for all exporting countries. Rules on benchmarks for insurance premiums are always appropriate because insurance subsidies unambiguously have the potential to distort markets.     

Optimal Taxation of Risky Human Capital*

In a two‐period life‐cycle model with ex ante homogeneous households, earnings risk, and a general earnings function, we derive the optimal linear labor tax rate and optimal linear education subsidies. The optimal income tax trades off social insurance against incentives to work. Education subsidies are not used for social insurance, but they are only targeted at offsetting the distortions of the labor tax and internalizing a fiscal externality. Both optimal education subsidies and tax rates increase if labor and education are more complementary, because education subsidies indirectly lower labor tax distortions by stimulating labor supply. Optimal education subsidies (taxes) also correct non‐tax distortions arising from missing insurance markets. Education subsidies internalize a positive (negative) fiscal externality if there is underinvestment (overinvestment) in education because of risk. Education policy unambiguously allows for more social insurance if education is a risky activity. However, if education hedges against labor‐market risk, optimal tax rates could be lower than in the case without education subsidies.     

ANALYZING POSTSECONDARY RETURNS: DOES EDUCATIONAL LOAN DEFAULT PLAY A ROLE?

The economic benefits of a traditional college education relative to a high school degree are well known to students and economists alike. However, little is known about the economic returns associated with associate and vocational degrees. Using a large micro-data set of former guaranteed student loan borrowers, this paper analyzes post-schooling returns for bachelors as well as associates and vocational students. The analysis further extends the existing literature by controlling for individual characteristics that income studies typically do not measure. By including the default status of the educational loan used to finance the postsecondary education, the intrinsic individual characteristics of commitment and initiative are controlled for and are found to significantly increase earnings.     

Should governments stop subsidies to private goods? Evidence from rural Latin America

This paper empirically documents the effects of subsidizing private goods to the detriment of the government's supply of public goods. We use a new data set from the rural sector in fifteen Latin American countries over the period 1985–2001 collected using a methodology that allows us to separate government subsidies to private goods from expenditures in the provision of public goods. The econometric evidence shows that the government's decision to subsidize either private or public goods has dramatic consequences for economic development. Reducing the share of subsidies to private goods (or, equivalently, increasing the share of public goods) in the government's budget has, ceteris paribus, a large and significant positive impact on rural per capita income, reduces certain undesirable environmental effects associated with output expansion, and contributes to poverty reduction.     

Optimal credit rationing in not‐for‐profit financial institutions*

We examine the dynamic optimization problem for not‐for‐profit financial institutions (NFPs) that maximize consumer surplus, not profits. We characterize the optimal dynamic policy and find that it involves credit rationing. Interest rates set by mature NFPs will typically be more favorable to customers than market rates, as any surplus is distributed in the form of interest rate subsidies, with credit rationing being required to prevent these subsidies from distorting loan volumes from their optimal levels. Rationing overcomes a fundamental problem in NFPs; it allows them to distribute the surplus without distorting the volume of activity from the efficient level.     

金融排斥对农户收入的影响——基于PSM方法的经验分析

从贷款、储蓄、证券和关系4个维度构建金融排斥指标,采用倾向得分匹配法分析了4种类型的金融排斥对中国农户收入的影响。研究发现:证券排斥对农户收入的影响最大,储蓄排斥、贷款排斥和关系排斥的影响依次递减;证券排斥和储蓄排斥对东部地区农户收入的冲击较大,贷款排斥和关系排斥对西部地区农户收入的影响较大。指出:高收入地区应注重开发涉农金融产品,低收入地区应保证提供基础信贷;应实施分类瞄准的普惠性金融政策。