Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/161187
Authors: 
Arbel, Yuval
Bar-El, Ronen
Tobol, Yossi
Year of Publication: 
2017
Series/Report no.: 
IZA Discussion Papers 10564
Abstract: 
We model a higher education system that admits students according to their admission signal (e.g., matriculation GPA, SAT), which is, in turn, affected by their cognitive ability and socioeconomic background. We show that subsidizing education loans increases neither human capital stock nor aggregate consumption, but only yields income redistribution mainly among the upper class. We show that the policies aimed at compensating for poor socioeconomic background result in a higher aggregate consumption, as well as income redistribution from top to bottom. We test the model using a unique dataset that includes proxies of socioeconomic background and cognitive ability. Results show that the high school matriculation GPA is a weak predictor of academic achievements. We demonstrate that, while the high school matriculation GPA is explained by proxies of cognitive ability and socioeconomic background, academic GPA is solely explained by cognitive ability proxies. Finally, the lack of a matriculation certificate is associated with a poor socioeconomic background.
Subjects: 
higher education
human capital formation
income inequality
socioeconomic background
subsidies
JEL: 
C83
D31
D62
I22
I28
R23
Document Type: 
Working Paper

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