| Bridget Terry Long
Harvard University
The effect of state in-kind subsidies on investment in higher education
FINAL REPORT:
Public colleges are heavily supported by state governments and offer a product with a discounted tuition price to in-state sutdents. This paper examines the effects of this asymmetrical aid on the type, quality, and sector of human capital investments. Although economic theory provides several reasons why this policy may be favorable, there is debate as to whether the subsidies produce negative outcomes such as the improper sorting of students to schools. In addition, the tax system to finance the subsidies may be regressive. Utilizing micro data from the National Postsecondary Student Aid Survey (NPSAS) and the Integrated Postsecondary Education Data System (IPEDS), I exploit state cross-sectional variation in subsidy amounts and tuition costs to observe similar individuals under different subsidy policies. In order to estimate the effect of the subsidy amount on the probability of attending a public school, students were matched with the in-state, public school they were most likely to attend. These assignments were based upon comparing the characteristics of the student with those of the student body of each eligible public school. This analysis will enable me to identify how different groups have responded to the subsidies and answer whether state subsidies have increased college access or overall educational investment. Finally, I will be able to comment on the transfers that occur among taxpayers by examining the frequency and amount received by various groups in comparison to their tax burdens.
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