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The Impact of Price Caps and Spending Cuts on U.S. Postsecondary Attainment

David J. Deming, Christopher R. Walters

NBER Working Paper No. 23736
Issued in August 2017
NBER Program(s):Economics of Education, Labor Studies, Public Economics, Productivity, Innovation, and Entrepreneurship

Increasing the postsecondary attainment rate of college-age youth is an important economic priority in the U.S. and in other developed countries. Yet little is known about whether different forms of public subsidy can increase degree completion. In this paper, we compare the impact of the marginal taxpayer dollar on postsecondary attainment when it is spent on lowering tuition prices versus increasing the quality of the college experience. We do so by estimating the causal impact of changes in tuition and spending on enrollment and degree completion in U.S. public postsecondary institutions between 1990 and 2013. We estimate these impacts using a newly assembled data set of legislative tuition caps and freezes, combined with variation in exposure to state budget shocks that is driven by differences in historical reliance on state appropriations. We find large impacts of spending on enrollment and degree completion. In contrast, we find no impact of price changes. Our estimates suggest that spending increases are more effective per-dollar than price cuts as a means of increasing postsecondary attainment.

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Document Object Identifier (DOI): 10.3386/w23736

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