Public finance of higher education and income distribution: Some evidence from the state of Illinois

Equity consideration is important in formulation of policies relating to public expenditures on higher education. Nevertheless, no empirical study of the distributional effects of public subsidies to higher education has been done for the state of Illinois. There are a few studies for other states, but their results cannot be directly applied to Illinois because of the differences in fiscal and educational systems. Several methodological weaknesses of earlier studies also need to be remedied.;This study has estimated the income distributive effects of public subsidies to undergraduate education in state universities and community colleges in Illinois for the year 1989. The objective is to find out which income class receives more or less benefits relative to its tax contribution under the existing systems of taxes and higher education finance in Illinois. Such information enables one to make some judgement about the equity dimension of the public higher education system.;Assuming that the magnitude of benefits as well as costs equals the amount of state and local funds used as tuition subsidies and financial aid, the net benefits for various income classes have been estimated by applying traditional tax and expenditure incidence analysis.;The major finding of the study is that the existing system of public subsidization of undergraduate education in Illinois favors the lower and middle income classes. Public subsidies contribute to redistributing income from higher- to lower- and middle-income families. The most significant transfer seems to occur from the highest-income class (with annual income of over ;The sensitivity of the results has been tested using alternative tax shifting and incidence assumptions. The distribution of net benefits without financial aid, and separate distributions for public universities and community colleges have also been estimated. The general pattern of distribution of net benefits is similar in all cases.