Tuesday, December 18, 2012

Do state scholarships keep graduates in the state?

Many US states provide special study scholarships reserved to state residents which be applied to any in-state university, including private ones. This goes beyond the lower tuitions at state universities for state residents. The idea is that students tend to stay for work (and pay taxes and improve human capital) where they studied, thus you want to get them to study in-state. If every state does this, the macroeconomic impact is zero on work location, no matter what the mobility, and negative on state budgets. But this is a game hat states play, like they do with tax competition, thus it is interesting to see whether a state gains from playing this if all others already do.

Maria Fitzpatrick and Damon Jones find that the impact of these programs can be found, but it is quite small. That money is thus mostly going to either students who move out-of-state after their studies or to students who would have stayed within state boundaries anyway. This result is obtained by looking at the expansion of these program in 15 states from 1990 to 2010 and how they impacted residential patterns. It would of course be better to have information from the students themselves (and a control group), but you got to start somewhere.

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