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Publication Type:
journal articles

Publication Year:
2005

Publication Bibliography:

Risky Higher Education and Subsidies
(with Kartik Athreya)
Journal of Economic Dynamics and Control , 29, 979-1023, 2005.
Abstract: Tertiary education in the U.S. requires large investments that are risky, lumpy, and well-timed. Tertiary education is also heavily subsidized. By making the risk of human capital investment more acceptable, especially to low wealth households, subsidies may increase investment in human capital, lower long-run inequality, and reduce aggregate precautionary savings. However, subsidies also encourage more poorly prepared students to attend and are usually financed via distortionary taxes. In this paper, we find that observed collegiate subsidies improve welfare substantially relative to the fully decentralized (zero subsidy) outcome. We show that subsidies help smooth consumption, lower skill premia, increase interest rates as precautionary savings fall, lower the inequality of both consumption and wealth, increase intergenerational income mobility and raise welfare, even when financed by distortionary taxes.
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Publication Title:
Risky Higher Education and Subsidies

Author Name:
Akyol, Ahmet

Co-Author Name(s):

Kartik Athreya
c
d

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Title of Paper:
Risky Higher Education and Subsidies

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Title of Journal:
Journal of Economic Dynamics and Control

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Volume and Issue:
29

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Page Number(s):
979-1023

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