Download This PaperFiscal and Individual Rates of Return to University Education with and without Graduation
16 Pages Posted: 9 Apr 2020
Date Written: 2020
Abstract
Based on a detailed model of the German tax-benefit system, this paper simulates private and fiscal returns to education for college graduates and college dropouts. Completing a five-year college degree is found to be associated with an internal rate of return (IRR) of 14.2% for gross earnings, 7.4% for disposable income, and 6.6% for the net fiscal contribution. Individuals who drop out of college after two years, and subsequently complete a three-year period of vocational training, are found to have negative IRRs: -0.5% for gross earnings and -5.9% for both disposable income and the net fiscal contribution. In a series of counterfactual experiments, we explore how these returns react to changes in gross earnings, expenditure per student, and the level of income tax payments.
Keywords: University education, graduation, dropouts, taxation, internal rate of return
JEL Classification: I26, I28, H23, J31
Suggested Citation: Suggested Citation
IZA Institute of Labor Economics
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