## Tuition Subsidies in a Model of Economic Growth

_IMF Working Papers, September 1, 1994_

## Source details

**Canonical URL:** [Tuition Subsidies in a Model of Economic Growth](https://www.imf.org/en/publications/wp/issues/2016/12/30/tuition-subsidies-in-a-model-of-economic-growth-1014)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/tuition-subsidies-in-a-model-of-economic-growth-1014/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/tuition-subsidies-in-a-model-of-economic-growth-1014/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/tuition-subsidies-in-a-model-of-economic-growth-1014/bundle-manifest.json)

## Bibliographic details
- Authors: Philip R. Gerson
- Published: September 1, 1994
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451852332.001

---

### Summary
- This paper examines a two-sector aggregative growth model with human capital and educated unemployment.
- In the model, a tuition subsidy may lead to a long-run decline in the educated fraction of the population because it may decrease the long-run per capita stock of physical capital in the economy.
- A lower per capita stock of physical capital tends to reduce the output of the education sector and the incentives for workers to enroll in school.
- The paper suggests that cuts in education subsidies undertaken by countries in Africa for adjustment reasons may actually lead to long-run increases in the educational attainment of their populations.

### Model findings
- Framework: two-sector aggregative growth model with human capital and educated unemployment.
- Mechanism demonstrated:
  - Tuition subsidy → decrease in long-run per capita stock of physical capital.
  - Lower per capita physical capital → reduced output of the education sector.
  - Reduced output of the education sector → lower incentives to enroll in school → potential long-run decline in the educated fraction of the population.

### Policy implications
- Education subsidy cuts for adjustment reasons in African countries may, according to the model, produce counterintuitive outcomes:
  - Such cuts may lead to long-run increases in educational attainment.
- Policy design should account for general-equilibrium effects of subsidies on physical capital accumulation and education-sector output.

---


_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/tuition-subsidies-in-a-model-of-economic-growth-1014_