Abstract
We build a political economy model allowing us to shed light on the empirically observed simultaneous increase in university size and participation gap. Parents differ in income and in the ability of their unique child. They vote over the minimum ability level required to attend public universities, which are tuition-free and financed by proportional income taxation. Parents can invest in private tutoring to help their child pass the admission test. A university participation gap emerges endogenously with richer parents investing more in tutoring. A unique majority voting equilibrium exists, which can be either classical or “ends-against-the-middle” (in which case parents of both low- and high-ability children favor a smaller university). Four factors increase the university size (larger skill premium enjoyed by university graduates, smaller tutoring costs, smaller university cost per student, larger minimum ability of students), but only the former two also increase the participation gap. A more unequal parental income distribution also increases the participation gap, but barely affects the university size.
Highlights
The second half of the XXth Century has witnessed a large expansion of higher education, with the US leading the way with the G.I
We identify two other factors which increase university size but decrease the participation gap : a decrease in the unit cost of university and a larger minimum ability of children
Our paper extends the work of De Fraja (2001) in four directions: (i) we model general equilibrium labor market effects, so that the decision to attend university by an additional agent exerts an externality on others by lowering the skill premium; (ii) we study majority voting over the admission test level in the presence of subsidy of fees; (iii) we allow for parental investments in tutoring; and (iv) we apply our framework to explain the stylized fact outlined above above
Summary
The second half of the XXth Century has witnessed a large expansion of higher education, with the US leading the way with the G.I. We prove the existence of a unique majority voting equilibrium that can be of two types.[5] In a classical equilibrium, the half population who most prefer a higher-thanequilibrium value of θu is composed of parents of high ability children who favor a smaller university (i) to boost the high-skilled wage of their child, by restricting the supply of future high-skilled workers, and (ii) to decrease the tax cost of university. Our paper extends the work of De Fraja (2001) in four directions: (i) we model general equilibrium labor market effects, so that the decision to attend university by an additional agent exerts an externality on others by lowering the skill premium; (ii) we study majority voting over the admission test level in the presence of (full) subsidy of fees; (iii) we allow for parental investments in tutoring; and (iv) we apply our framework to explain the stylized fact outlined above above.
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