In his Henry tax review paper, Andrew Leigh says:
The principle that education subsidies should be increased (or graduate taxes decreased) if there is a social return to education fails to hold only in very special circumstances.
These ‘special circumstances’ are that
1. Subsidies or taxes would be ineffective, i.e. would not increase educational attainment.
2. Everyone is already getting the maximum level of education.
3. Lumpy investments, e.g. where the optimal level might be 1 year of post-compulsory education but only 3-year degrees can be purchased.
But is circumstance 1 really so ‘special’? As noted in an earlier post Andrew’s empirical evidence suggests that circumstance 1 may common rather than special. Continue reading “Do ‘social returns’ justify higher education subsidies?”