EXPENDITURE-TAX INCIDENCE STUDIES, PUBLIC HIGHER EDUCATION, AND EQUITY

Abstract

Expenditure-tax incidence studies have been unsuccessful in determining whether public higher education promotes more or less inequality , primarily because of their inability to assess the system's impact on the distribution of lifetime income. This paper suggests that the difficulty may be overcome by applying Becker's analytical framework for explaining income distribution to the structuring and interpreting of expendituretax incidence studies. A study of the St. Louis-St. Louis County Junior College District is presented which indicates the system does not have an equalizing effect on educational opportunity and the distribution of lifetime income. Y'he decade of the 60 's witnessed an increasing willingness among political decision makers to utilize the public budget not only as a stabilization tool but also as a means of promoting less inequality among people of various economic backgrounds. Research effort was directed to the empirical analysis of the distributional impact of the public budget. A prime result of this effort is Hansen and Weisbrod's (H & W) book on the direct benefits and costs of California public higher education in which they assess that system's impact on the distribution of current family income.1 Their basic finding is that University (U) students receive the largest average subsidy (expenditure minus ♦Assistant Professor of Economics, Wayne State University. Part of this paper is from my dissertation, completed at Washington University under the direction of John Legier, Ted Bergstrom, and Murray Weidenbaum. I am also indebted to Masanori Hashimoto and an anonymous referee for comments which have significantly improved the paper. family tax payment) and have the highest median family income, while Junior College (JC) students receive the smallest average subsidy and have the lowest median family income. State College (SC) students are in t e middle. Various individuals have commented critically on these results, emphasizing possible deficiencies in the computational procedures and the policy implications of the empirical work.2 The discussants generally agree, however, that this type of expendituretax incidence study is not suitable for determining whether public higher education is promoting more or less inequality among people of various economic backgrounds. The Musgrave budget system indicates that using public higher education transfers of income-in-kind as a means of redistributing current family income is less efficient than using direct transfers of money.3 Thus, utilizing public higher education as a redistributive tool must rest on the premise that it is more efficient than a system of direct transfers at redistributing the future or lifetime income of students. The success of public higher education at promoting more or less inequality must therefore be based on its impact on the distribution of future or lifetime income.