The Nobel Prize for Economics Kenneth Arrow (1) states that the use of public resources to finance higher education has as indirect effect the increase in inequality. In fact, given that the majority of students who engage in tertiary education comes from wealthy families, then contributing to their studies with public resources means strengthening their advantage at the expense of those who have lower incomes.
The Italian case is particularly interesting (2). Using data provided by the Bank of Italy of 2009 (3) we consider two groups of citizens: those with high income (more than € 31 thousand per year) and those on low incomes (less than € 31 thousand per year), which accounts for 80% of Italian taxpayers and, of these, 70% of them do not have children enrolled at the university. The marginal rate of income tax (IRPEF) for these low-income taxpayers is 38%; therefore they contribute to 38% to finance all government spending, including that for the university. For this reason of the 7 billion per year that make up the public expenditure on universities (FFO – Ordinary Financing Fund) we assumed that 38% (about 2.5 billion) will be financed by low-income citizens who do not have children to university.
Being about 40% of college students with high-income families, then about 40% of the 2.5 billion contribution is a transfer from low-income taxpayers without children to college to the high-income taxpayers with children students . This certainly seems to be an unfair transfer of wealth. Finally, the remaining half billion goes to support the remaining 60% of students from low-income families but with their offspring to college: so it seems a transfer from the poor without and those with children to college.
Wanting to give a more detailed interpretation of the latter data, we consider it as a transfer from the poor to the rich of the future, assuming that probably those who attend university will receive an higher salary in the future; so this second type of transfer could be interpreted as unfair as well, which in fact may be the positive externalities to the poor family net contributor?
Even without considering this interpretation that can be considered controversial, nearly half of the transfers are from taxpayers poor and to the rich ones with children to college.
Another study (4) focuses on the effective progressivity of the university fees only between the families who have children students. The result says that, by ordering the student population into deciles according to the declared income, the balance (figure 1) between the amount of FFO that everyone pays through the personal income tax and the portion of FFO of which each income group benefits through the inclusion of the children to the university indicates that the poorest are in active, while the richest is in deficit. So the richest taxpayers group finances the university more than they used. This fact leads us to believe that the system of university funding is redistributive and progressive; between families with college students we can say there are transfers from those with higher incomes to those with low incomes.
The fact that the system is fair compared to the census does not in any way imply that it is also efficient, meaning that the resources available are used in the best way inside of it.
Finally, as we have seen, a fair system among students, it may not mean a fair system among society.
(1) Kenneth Arrow, Education Economics, Volume 1, Issue 1, 1993.
(2) Andrea Ichino e Daniele Terlizzese, Facoltà di scelta, Rizzoli, 2013.
(3) Federico Cingano e Piero Cipollone, “Returns to Education”, QEF, Bank of Italy, 2009.
(4) Emanuele Pugliese e Ugo Gragnolati, “Chi finanzia l’università pubblica?”, lavoce.info, 2013.