ProPelled: The Effects of Grants on Graduation, Earnings, and Welfare

Jeffrey T. Denning, Benjamin M. Marx, Lesley J. Turner

NBER Working Paper No. 23860
Issued in September 2017, Revised in June 2018
NBER Program(s):Economics of Education, Labor Studies, Public Economics

We estimate effects of the largest U.S. federal grant for college students using administrative data from Texas four-year public colleges and a discontinuity in grant generosity. Eligibility for additional grant aid significantly increases degree receipt and earnings beginning four years after entry. Estimated increases in income tax payments fully recoup government expenditures within ten years. A theoretical model shows that welfare effects of changes in college prices depend on (1) externalities from recipients’ behavioral responses and (2) facilitation of intertemporal consumption smoothing. Calibration suggests that increasing grant aid for low-income college students would enhance welfare in many U.S. settings.

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Document Object Identifier (DOI): 10.3386/w23860

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