Phases of Higher Education, Tuition Grants, and Equity-Efficiency Tradeoff

Working Paper 848

Abstract

We study how taxes and alternative higher education subsidies affect equity-efficiency trade-off for countries at different phases of higher education development. We find a scholarship program is the most efficient higher-education-subsidy program at all stages of higher education development due to its highly regressive nature. Laissez-faire (no-government subsidy) Lorenz dominates universal grant in the early stages of development; vice versa, in the later stages of development. Higher education subsidy could thus be regressive in developing countries but progressive in advanced economies. We also find, at the later stages of higher education development, enrollment rate increases in universal subsidy but decreases in other policies, implying the recent shift away from universal grant scheme in the UK could lead to a decline in the enrollment rate.