Public funding of Higher Education: who gains, who loses?

This paper analyses the e¤ects of public funding of higher education on the welfare of the di¤erent agents. It takes into account the hierarchical nature of the educational system and also the fact that parents always have the possibility to complement basic public education with private expenditures in individual tutoring. It is obtained that although public funding implies a larger access to higher education it is always the case that some of the agents that gain access lose in welfare terms. Moreover, it is shown that the marginal agent to access university would always prefer a pure private funding system. Thus, when studying the e¤ects of public funding of higher education, we can not identify gaining access to University with an increase in welfare. Finally, I consider a funding system where only those that send their o¤spring to university support the funding of higher education. Keywords: higher education, public funding JEL Classi…cations: I22 and I28 email: [email protected] yI acknowledge …nancial support from FEDER through the Fundação para a Ciência e Tecnologia. I thank Tiago Neves Sequeira for many comments and suggestions. I thank Nicholas Barr and the other participants on the Arne Ryde Symposium on ”The Economics of Higher Education”, and participants on the ASSET 2007, for their comments.