Utilising microsimulation to estimate new marginal returns to education: Ireland 1987-2011

In this paper we utilise microsimulation techniques in the form of an income generation model and a tax/benefit model to estimate both the fiscal and net private return to education at a marginal level. This is carried out empirically using Irish data across the period 1987-2011 and is the first study to utilise these techniques in such a manner. The results indicate that a more generous tax/benefit system, combined with a greater state burden of the cost of education over the period 2000-2005 may have helped increase the individual’s return to education, while reducing the state return from investing in education. However, this trend is revered between 2005-2011, as the fiscal crisis in Ireland forces significant changes to the Irish tax/benefit system. The methodology employed allows us to specifically analyse the impact of various components of the tax/benefit system upon these returns across time and show the role of income tax changes upon the return to education for the individual and the state.