Financing higher education: public choice and social welfare

Abstract

This paper considers the use of fees versus the use of taxation for the finance of higher education in a framework that pays special attention to some of the interdependencies involved. In particular, the use of subsidies, in the form of a higher education grant to students, involves, via the government’s budget constraint, an increase in taxation. This increase in income taxation imposes an obvious burden on those who do not invest in higher education, but it is not a ‘free’ good from the point of view of the grant recipients who must pay higher taxes than otherwise during their working lives. This component of taxation may be called a deferred fee.