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 the entire observed rise in average net tuition since 1990 and that rising income inequality has also depressed college attendance.
- Staff Report 571: Optimal Capital Taxation Revisited
- Bengui and Bianchi: Macroprudential Policy with Leakages
- Ai and Bhandari: Asset Pricing with Endogenously Uninsurable Tail Risk
- Cai and Heathcote: College Tuition and Income Inequality
- Benjamin and Wright: Deconstructing Delays in Sovereign Debt Restructuring
Subscribe to receive email alerts when economists from the Federal Reserve Bank of Minneapolis publish new Staff Reports, Working Papers or Economic Policy Papers. Occasionally other important news will be shared.