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 noncognitive 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 percent. More generous ability-tested grants would increase welfare and dominate both an expansion of student loans and a labor tax cut.
Authors
Giovanni Gallipoli
Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.
Brant Abbott
Giovanni L. Violante
Journal article details
- DOI
- 10.1086/702241
- Publisher
- Journal of Political Economy
- Issue
- Volume 127, Issue 6, December 2019
Suggested citation
Abbott, B et al. (2019). 'Education Policy and Intergenerational Transfers in Equilibrium' 127(6/2019)
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