Education Policy and Intergenerational Transfers in Equilibrium

114 Pages Posted: 9 Feb 2013

See all articles by Brant Abbott

Brant Abbott

Queen's University - Department of Economics

Giovanni Gallipoli

Vancouver School of Economics, UBC; Centre for Economic Policy Research (CEPR); University of Chicago - Becker Friedman Institute for Economics; Rimini Centre for Economic Analysis

Costas Meghir

Yale University; Yale University - Cowles Foundation; Institute for Fiscal Studies (IFS); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Giovanni L. Violante

New York University, Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: February 2013

Abstract

We examine the equilibrium effects of college financial aid policies building an overlapping generations life cycle model with education, labor supply, and saving decisions. Cognitive and non-cognitive skills of children depend on parental education and skills, and affect education and labor market outcomes. Education is funded by parental transfers that supplement grants, loans and student labor supply. Crowding out of parental transfers by government programs is sizable and cannot be ignored. The current system of federal aid improves long-run welfare by 6%. More generous ability-tested grants would increase welfare and dominate both an expansion of student loans and a labor tax cut.

Suggested Citation

Abbott, Brant and Gallipoli, Giovanni and Meghir, Costas and Violante, Giovanni L., Education Policy and Intergenerational Transfers in Equilibrium (February 2013). NBER Working Paper No. w18782. Available at SSRN: https://ssrn.com/abstract=2214251

Brant Abbott (Contact Author)

Queen's University - Department of Economics ( email )

99 University Avenue
Kingston K7L 3N6, Ontario
Canada

Giovanni Gallipoli

Vancouver School of Economics, UBC ( email )

6000 Iona drive
Vancouver, BC BC V6T 1L4
Canada

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Chicago - Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

Costas Meghir

Yale University ( email )

37 Hillhouse avenue
New Haven, CT CT 06511
United States
+12034323558 (Phone)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Giovanni L. Violante

New York University, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-992-9771 (Phone)
212-995-4186 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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