Public Finance in the Era of the COVID-19 Crisis
18-20 August 2021 | Online, Organized by University of Iceland, Reykjavík
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Please note that all times are shown in the time zone of the conference. The current conference time is: 2nd Dec 2021, 01:25:32pm GMT
C03: College Education
2:15pm - 2:37pm
University Openings and their Long-term Impact on Regional Wages: Evidence from West Germany
1ifo Institute, Germany; 2LMU Munich; 3CESifo
This paper investigates the long-term effect of university openings on regional wages in West Germany. We combine geo-coded data on the universe of German universities with information on individual wages from social security records to estimate the impact of university openings on different wage percentiles of the county wage distribution. We find that establishing a new university has a positive effect on wages in nearby counties. This effect differs in terms of size and timing along the wage distribution as well as between different employee subgroups. Moreover, the effect is driven by establishing universities of applied sciences and by universities in urban regions.
2:37pm - 3:00pm
College Openings and Local Economic Development
1University of Heidelberg; 2Luxembourg Institute for Socio-Economic Research; 3Center for European Economic Research
We study the effect of universities and colleges on the local economy using administrative data from Germany. Our empirical approach proceeds in two steps: first, we exploit college openings in order to identify the short- and medium-run effects on regional development. Second, we combine a matching procedure with a time-varying difference-in-differences approach to find suitable control regions for regions with a college opening. The results indicate that the opening of a college increases the share of high-skilled workers without reducing high-skilled wages which is consistent with shifts on the demand side. We do not find evidence that new college graduates replace older or low-skilled workers, but rather that total employment increases. Most of the adjustments happen in incumbent firms either through changes in the output mix or in technology.
3:00pm - 3:22pm
College Education and Income Contingent Loans in Equilibrium: Theory and Quantitative Evaluation
1University of Oxford, United Kingdom; 2Hitotsubashi University
We investigate the welfare implications of income-contingent loans (ICLs) used for financing college education in presence of the dropout risk that depends on unobservable effort. Using a simple model, we show that the laissez-faire enrollment is inefficiently low due to missing insurance against dropping out. However, providing this insurance generates a moral hazard cost of lowering effort. We show that ICLs can implement the second best allocation. Then, we construct a heterogeneous agent OLG life-cycle model, calibrate it to the US and show that ICLs significantly increase welfare and that their non-linear structure is essential to delivering high welfare gains.
3:22pm - 3:45pm
Opportunity Unraveled: Private Information and the Missing Markets for Financing Human Capital Investments
1University of Arizona, United States of America; 2Harvard University, United States of America
Investing in college carries high returns, but comes with considerable risk. Financial products like equity contracts can mitigate this risk, yet college is typically financed through non-dischargeable, government-backed student loans. This paper argues that adverse selection has unraveled private markets for college-financing contracts that mitigate risk. We use survey data on students' expected post-college outcomes to estimate their knowledge about future outcomes, and we translate these estimates into their implication for adverse selection of equity contracts and several state-contingent debt contracts. We find students hold significant private knowledge of their future earnings, academic persistence, employment, and loan-repayment likelihood, beyond what is captured by observables. Our empirical results imply that a typical college-goer must pay back $1.64 plus interest for every $1 of equity financing to cover the financier's costs of covering those who would adversely select their contract. We quantify significant welfare gains from government subsidies to these missing markets.
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