Education Policy and Intergenerational Transfers in Equilibrium


We examine the equilibrium effects of alternative financial aid policies intended to promote college participation. We model a rich environment featuring various dimensions of heterogeneity and intergenerational linkages.
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Abstract. This paper examines the equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life cycle model with education, labor supply, and consumption/saving decisions. Cognitive and non-cognitive skills of children depend on the cognitive skills and education of parents and affect education choice and labor market outcomes. Driven by both altruism and paternalism, parents make transfers to their children which can be used to fund education, supplementing grants, loans, and the labor supply of the children themselves during college. The crowding out of parental transfers by government programs is sizable and thus cannot be ignored when designing policy. The current system of federal aid is valuable: removing either grants or loans would each reduce output by 2% and welfare by 3% in the long-run. An expansion of aid towards ability-tested grants would be markedly superior to either an expansion of student loans or a labor tax cut. This result is, in part, due to the complementarity between parental education and ability in the production of skills of future generations.

Citation

@article{AGMV2019,
 title={Education Policy and Intergenerational Transfers in Equilibrium},
 author={Abbott, Brant and Gallipoli, Giovanni and Meghir, Costas and Violante, Giovanni Luca},
 journal={Journal of Political Economy}, 
volume = {126},
number = {6},
pages = {2569-2624},
year={2019}
}

Author: gallipol

Giovanni Gallipoli is a professor at UBC in Vancouver. Giovanni's research focuses on the origins and consequences of economic inequality with a focus on how heterogeneity shapes individual behaviors and aggregate economic outcomes. Giovanni has worked on a variety of topics, including the equilibrium effects of policies that promote skill formation; the link between skill heterogeneity and a country's comparative advantage; the influence of families on long-term outcomes such as labor supply and consumption; intergenerational mobility and the linkages between parental heterogeneity and inequality; and how firm-level differences contribute to variation in workers’ skill returns. Giovanni is a recipient of the Killam Research Award, the FEEM Award, and the Young Economist Award of the European Economic Association. He is a CEPR research fellow as well as a former Fulbright Scholar and Weatherhall fellow. He serves as a member of the external board of overseers of the Panel Study of Income Dynamics (PSID) and as an associate editor of the Journal of Political Economy. Giovanni is an alumnus of the Sant'Anna School of Advanced Studies and the University of Pisa in Italy. He received his Ph.D. in Economics from University College London in the UK.