Higher education funding, welfare and inequality in equilibrium

Mellior, G ORCID: 0009-0000-7032-5060 (2025) Higher education funding, welfare and inequality in equilibrium Journal of Comparative Economics, 53 (4). pp. 1133-1172. ISSN 0147-5967, 1095-7227

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Abstract

This paper analyses quantitatively the effect that higher education funding policies have on welfare and inequality. We evaluate five different higher education financing schemes with a heterogeneous agent model in continuous time. When educational costs are small, differences in outcomes across systems are negligible. As the cost of education and the share of debtors in society rises, it becomes preferable to fund education with subsidies, instead of student loans, as there is a pecuniary externality that arises with debt. Although subsidies can generate large steady state welfare gains, transition costs can be large enough to justify the status quo. The exception, full subsidy with graduate taxes, yields substantial welfare gains, even when taking into account transitional dynamics.

Item Type:	Article
Uncontrolled Keywords:	Incomplete markets, Higher education funding, Human capital
Divisions:	Faculty of Humanities & Social Sciences Faculty of Humanities & Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	29 Aug 2025 09:16
Last Modified:	28 Feb 2026 15:16
DOI:	10.1016/j.jce.2025.07.011
Open Access URL:	https://doi.org/10.1016/j.jce.2025.07.011
Related Websites:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3194206
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