Working Paper: NBER ID: w23860
Authors: Jeffrey T. Denning; Benjamin M. Marx; Lesley J. Turner
Abstract: We estimate effects of the largest U.S. federal grant for college students using administrative data from Texas four-year public colleges and a discontinuity in grant generosity. Eligibility for additional grant aid significantly increases degree receipt and earnings beginning four years after entry. Estimated increases in income tax payments fully recoup government expenditures within ten years. A theoretical model shows that welfare effects of changes in college prices depend on (1) externalities from recipients’ behavioral responses and (2) facilitation of intertemporal consumption smoothing. Calibration suggests that increasing grant aid for low-income college students would enhance welfare in many U.S. settings.
Keywords: Pell Grant; Higher Education; Financial Aid; Welfare Effects; Graduation Rates; Earnings
JEL Codes: D14; D15; D61; H21; H52; I22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in annual earnings (J31) | increased tax receipts (H29) |
| Pell Grant eligibility (I28) | shifts towards higher-earning fields (J24) |
| Pell Grant eligibility (I28) | improved educational attainment (I24) |
| increase in graduation rates (A23) | improved educational attainment (I24) |
| Pell Grant eligibility (I28) | positive fiscal externality (D62) |
| Pell Grant eligibility (I28) | increase in graduation rates (A23) |
| Pell Grant eligibility (I28) | increase in annual earnings (J31) |