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College Tuition and Income Inequality

  • Zhifeng Cai
  • Jonathan Heathcote
American Economic Review
vol. 112, no. 1, January 2022
(pp. 81-121)
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Abstract

This paper evaluates the role of rising income inequality in explaining observed growth in college tuition. We develop a competitive model of the college market, in which college quality depends on instructional expenditure and the average ability of admitted students. An innovative feature of our model is that it allows for a continuous distribution of college quality. We find that observed increases in US income inequality can explain more than half of the observed rise in average net tuition since 1990 and that rising income inequality has also depressed college attendance.

Citation

Cai, Zhifeng, and Jonathan Heathcote. 2022. "College Tuition and Income Inequality." American Economic Review, 112 (1): 81-121. DOI: 10.1257/aer.20181027

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • I22 Educational Finance; Financial Aid
  • I23 Higher Education; Research Institutions
  • I24 Education and Inequality