Government Expenditure on the Public Education System

Abstract

AbstractWe investigate equilibrium impacts of federal policies such as free‐college proposals, taking into account that human capital is cumulative and that state governments have resource constraints. In our model, a state government cares about household welfare and aggregate educational attainment. The government chooses income tax rates, per‐student expenditures on K‐12 and college education, college tuition, and the provision of other public goods. We estimate the model using U.S. data. Our simulations suggest that free‐college policies would decrease state expenditure on education. More students would obtain college degrees. Most households would “pay” for the free‐college policies through negative welfare effects.