The Redistributive Effects of British Subsidies to Higher Education.
Mishkin, Elizabeth R.
- Like many forms of government spending, higher education subsidies redistribute income by using tax revenues to reduce the cost to students of attending college or university. Such subsidies are desirable because they make higher education affordable for students from lower income backgrounds, with important implications for equity and social mobility. However, when non-financial constraints deter ... read morelow-income students from enrolling in college or university, untargeted higher education subsidies largely benefit individuals who are not only from higher income backgrounds, but whose degrees will likely provide them with above-average earnings in the future. This effect is particularly significant in countries like the United Kingdom, characterized by high income inequality, low social mobility, and enormous untargeted subsidies to higher education. Following a 2006 analysis by William Johnson for the United States, this paper explores the redistributive properties of British subsidies to higher education. Focusing on the income of graduates and their non-graduate peers rather than of their parents, the experience-earnings profiles of a cohort of English and Welsh 17- to 25-year-olds are projected. From this information, the average net present value of the taxes paid and education benefits received is calculated for each lifetime income decile in order to provide a picture of the redistributive effects of the current system of higher education funding in the UK. The results show that, within this cohort, lifetime income deciles seven, eight, and nine are net beneficiaries of the higher education finance system, while the bottom six deciles, along with decile ten, pay more in taxes to higher education than they receive in direct benefits.read less