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Should Education Be Subsidized?

Author

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  • Philip A. Trostel

    (Hong Kong University of Science & Technology)

Abstract

An efficiency argument for public subsidies to education is proposed in this study. Subsidizing education is shown to be welfare improving because it makes the tax system less distortionary. Income taxation causes a less than efficient amount of investment in human capital, and induces an inefficient mix of human capital investments. Taxation causes too few goods, and relatively too much time, to be invested in human capital. Lowering the private cost ofgoods invested in human capital counteracts these tax distortions, thus it can be efficient to subsidize education.

Suggested Citation

  • Philip A. Trostel, 1996. "Should Education Be Subsidized?," Public Finance Review, , vol. 24(1), pages 3-24, January.
    • Handle: RePEc:sae:pubfin:v:24:y:1996:i:1:p:3-24
    DOI: 10.1177/109114219602400101
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    References listed on IDEAS

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    1. Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, Third Edition, pages 323-350, National Bureau of Economic Research, Inc.
    2. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
    3. James Davies & John Whalley, 1991. "Taxes and Capital Formation: How Important is Human Capital?," NBER Chapters, in: National Saving and Economic Performance, pages 163-200, National Bureau of Economic Research, Inc.
    4. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-350, April.
    5. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    6. John R. Lott, Jr., 1987. "Why Is Education Publicly Provided? A Critical Survey," Cato Journal, Cato Journal, Cato Institute, vol. 7(2), pages 475-501, Fall.
    7. Driffill, E John & Rosen, Harvey S, 1983. "Taxation and Excess Burden: A Life Cycle Perspective," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 671-683, October.
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    Cited by:

    1. Asplund, Rita, 2004. "A Macroeconomic Perspective on Education and Inequality," Discussion Papers 906, The Research Institute of the Finnish Economy.
    2. Nicholas Lawson, 2014. "Liquidity Constraints, Fiscal Externalities and Optimal Tuition Subsidies Optimal College Tuition Subsidies," AMSE Working Papers 1404, Aix-Marseille School of Economics, France, revised 18 Mar 2014.
    3. Yoo, Yoonha, 2002. "Economics of Private Tutoring: In Search for Its Causes and Effective Cures," KDI Research Monographs, Korea Development Institute (KDI), volume 127, number 200201.
    4. Richter, Wolfram F., 2006. "Taxing Human Capital Efficiently: The Double Dividend of Taxing Non-Qualified Labour More Heavily Than Qualified Labour," IZA Discussion Papers 2328, Institute of Labor Economics (IZA).
    5. Nicholas Lawson, 2017. "Liquidity Constraints, Fiscal Externalities, and Optimal Tuition Subsidies," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 313-343, November.
    6. Salvatore Barbaro, 2004. "Tax Distortion, Countervailing Subsidies and Income Redistribution," Departmental Discussion Papers 121, University of Goettingen, Department of Economics.
    7. Robert A.J. Dur & Coen N. Teulings, 2001. "Education and Efficient Redistribution," Tinbergen Institute Discussion Papers 01-090/3, Tinbergen Institute, revised 12 Jun 2003.
    8. Wolfram F. Richter, 2007. "Taxing Human Capital Efficiently – The Double Dividend of Taxing Nonqualified Labour More Heavily Than Qualified Labour," Ruhr Economic Papers 0012, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    9. Frank Kupferschmidt & Berthold U. Wigger, 2006. "Öffentliche versus private Finanzierung der Hochschulbildung: Effizienz‐ und Verteilungsaspekte," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 285-307, May.
    10. repec:zbw:rwirep:0012 is not listed on IDEAS
    11. Schmidtchen, Dieter & Kirstein, Roland, 2005. "Mehr Markt im Hochschulbereich: Zur Effizienz und Gerechtigkeit von Studiengebühren," CSLE Discussion Paper Series 2005-05, Saarland University, CSLE - Center for the Study of Law and Economics.
    12. William R. Johnson, 2004. "When is the Efficient Subsidy to Higher Education the Equitable Subsidy ?," Virginia Economics Online Papers 366, University of Virginia, Department of Economics.
    13. Rosenow, Jan & Platt, Reg & Demurtas, Andrea, 2014. "Fiscal impacts of energy efficiency programmes—The example of solid wall insulation investment in the UK," Energy Policy, Elsevier, vol. 74(C), pages 610-620.
    14. Chaitali Sinha, 2014. "Human Capital and Public Policy," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 79-125, June.

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