Who Pays for Higher Education? A Note on the Neglected Role of Income Tax Progression

Do university graduates pay back the public subsidies which they received as students through higher income taxes? Assuming a life cycle version of the ability-to-pay-principle of taxation as the normative foundation, we suggest the »foregone smoothing benefit« concept (FSB) in order to obtain a meaningful answer to this question in the context of a system with progressive income taxation. The FSB-concept abstracts from tax-base-broadening-effects, but hinges on the »income condensing-effect«. Using income data for academics and high-school graduates in Austria and the Austrian income tax schedule, we show that the foregone smoothing benefit may be quite sizeable.