Public funding of higher education: Who gains, who loses?

Abstract This paper analyses the effects of public funding of higher education on individuals’ welfare, taking into account the hierarchical nature of the education system and the fact that parents may complement basic public education with private tutoring. Although public funding financed by a proportional income tax increases access to higher education, some of the agents who gain access lose in welfare terms. Moreover, it is shown that the marginal agent regarding access to higher education would always prefer a pure private funding system in which he would not send his offspring to higher education but would also not pay tuition fees or pay taxes.