Working Paper: CEPR ID: DP13101
Authors: Jonathan Heathcote; Zhifeng Cai
Abstract: This paper evaluates the role of rising income inequality in explaining observedgrowth in college tuition. We develop a competitive model of the college market inwhich college quality depends on instructional expenditure and the average ability ofadmitted students. An innovative feature of our model is that it allows for a continuousdistribution of college quality. We nd that observed increases in US income inequalitycan explain more than the entire observed rise in average net tuition since 1990 andthat rising income inequality has also depressed college attendance.
Keywords: college tuition; income inequality; club goods
JEL Codes: I22; I23; I24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising income inequality (D31) | increase in average net tuition (I23) |
| rising income inequality (D31) | increase in willingness to pay for high-quality colleges (D29) |
| increase in willingness to pay for high-quality colleges (D29) | increase in average net tuition (I23) |
| rising income inequality (D31) | decrease in college attendance among lower-income households (I24) |
| weaker income growth (F61) | decrease in college attendance among lower-income households (I24) |
| rising income inequality (D31) | weaker income growth (F61) |