Efficiency and equity in public higher education in Brazil

We build a model that captures the main elements of the higher education market in order to evaluate the performance of different financing mechanisms in terms of efficiency and equity. Our main finding is that the provision of direct places in public colleges and universities raises a trade-off between efficiency and equity whenever part of the education cost is financed through taxes. Moreover, such a policy benefits primarily the richest individuals in society, such that it may enlarge the prior inequality inherited from the individuals’ familial background. Alternative mechanisms, namely public provision with tuition fees covering totally or partially the educational cost, and the government working as an intermediary between students and the capital market, are also analyzed. We show that, compared to these alternatives, the policy of ``free" higher education performs worse in terms of the trade-off between efficiency and equity. In fact, while it is impossible to achieve efficiency, ex-post and ex-ante equality simultaneously in almost all mechanisms analyzed, the less the taxpayer subsidizes students the lower the trade-off.