NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Education Policy and Intergenerational Transfers in Equilibrium

Brant Abbott, Giovanni Gallipoli, Costas Meghir, Giovanni L. Violante

NBER Working Paper No. 18782
Issued in February 2013, Revised in March 2016
NBER Program(s):Economics of Education, Economic Fluctuations and Growth, Labor Studies

This paper examines the equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/saving decisions. Driven by both altruism and paternalism, parents make inter vivos transfers to their children. Both cognitive and non-cognitive skills determine the non-pecuniary cost of schooling. Labor supply during college, government grants and loans, as well as private loans, complement parental resources as means of funding college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by 4-5 percentage points in the long-run. Further expansions of government-sponsored loan limits or grants would have no salient aggregate effects because of substantial crowding-out: every additional dollar of government grants crowds out 30 cents of parental transfers plus an equivalent amount through a reduction in student’s labor supply. However, a small group of high-ability children from poor families, especially girls, would greatly benefit from more generous federal aid.

download in pdf format
   (587 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18782

Users who downloaded this paper also downloaded* these:
Caucutt and Lochner w18493 Early and Late Human Capital Investments, Borrowing Constraints, and the Family
Lochner and Monge-Naranjo w20849 Student Loans and Repayment: Theory, Evidence and Policy
Meghir, Palme, and Schnabel w18145 The Effect of Education Policy on Crime: An Intergenerational Perspective
Belley and Lochner w13527 The Changing Role of Family Income and Ability in Determining Educational Achievement
Blundell, Costa Dias, Meghir, and Shaw w19007 Female Labour Supply, Human Capital and Welfare Reform
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us