The Political Economics of Higher-Education Finance for Mobile Individuals

We study voting over higher-education finance in an economy with two regions and two separated labor markets. Households differ in their financial endowment and their children's ability. Nonstudents are immobile. Students decide where to study; they return home after graduation with exogenous probability. The voters of the two regions decide on whether to subsidize higher-education costs or to rely on tuition fees only. We find that in equilibrium, in both regions a majority votes for subsidies when the return probability is sufficiently small. When that probability is large, both regions opt for full tuition finance.