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EFFICIENCY AND EQUITY IMPLICATIONS OF CHARGING NONRESIDENTS FULL‐COST TUITIONS
Author(s) -
Fethke Gary
Publication year - 2017
Publication title -
contemporary economic policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.454
H-Index - 49
eISSN - 1465-7287
pISSN - 1074-3529
DOI - 10.1111/coep.12232
Subject(s) - economics , taxpayer , subsidy , microeconomics , opportunity cost , equity (law) , welfare , public economics , macroeconomics , political science , law , market economy
With fixed costs and a break‐even constraint describing a public university, tuition and subsidy structures are endogenously determined that maximize constrained welfare, defined as students' value (net consumers' surplus) minus the taxpayer appropriation. Requiring nonresidents to pay full‐cost tuitions introduces relative deviations in demand that lead to efficiency losses and income transfers. To measure these effects, demand and cost expressions are developed to replicate standard decentralized budgeting frameworks for the University of Iowa and Iowa State University. Efficiency losses associated with requiring nonresidents to pay fully allocated costs are modest (2%–6%) compared to orders of magnitude larger distributional transfers from nonresidents to residents and taxpayers. ( JEL I22, I28)