No. 18–1 - Disinvesting in the Future - A Comprehensive Examination of the Effects of State Appropriations for Public Higher Education

Oct 15, 2026

Uploaded by Jacob

State appropriations constitute the largest revenue source for public higher education in the United States, yet they have declined markedly over recent decades, raising concerns about harm to colleges and students. This paper offers a more comprehensive assessment than prior work by examining effects and explicitly testing heterogeneity across institutional types. Evidence shows that state appropriation cuts negatively affect tuition and fees, student financial aid, instructional and other expenditures, and degree completion, with community colleges found especially vulnerable.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages77

Reading Time3 h 14 min

AccessFree to download

Introduction

Public higher education’s role and enrollment patterns

Efficiency and equity motivations for state support

External benefits: labor markets, research, crime, and civic engagement

Fiscal and mobility effects of public colleges

No. 18–1 Disinvesting in the Future? A Comprehensive Examination of the Effects of State Appropriations for Public Higher Education Bo Zhao Abstract: In aggregate, state appropriations are the largest revenue source for public higher education in the United States. However, these appropriations have significantly declined over past decades, drawing serious concerns about the potential negative impact on schools and students. This paper provides amore comprehensive study of the effects of state appropriations than previous research, while explicitly exploring and testing the heterogeneity of the effects by institutional type. It finds strong evidence of the negative effects of state appropriation cuts in the areas of tuition and fees, student financial aid, instructional and other school expenditures, and degree completion. Community colleges, which serve the most undergraduates but have not been well studied by past research, are shown to be particularly vulnerable to the negative effects of state funding cuts. Keywords: state appropriations, public higher education, community colleges, state funding cuts JEL Classifications: H2, H4, H7, I2 Bo Zhao is a senior economist in the New England Public Policy Center (NEPPC) at the Federal Reserve Bank of Boston. His email address [is](is bo.zhao@bos.frb.org)[ ](is bo.zhao@bos.frb.org)[bo.zhao@bos.frb.org](is bo.zhao@bos.frb.org). The author would like to thank Kathy Bradbury, Erin Graves, Osborne Jackson, Bob Triest, and participants at the New England Public Policy Center brownbag seminar for helpful comments. Calvin Kuo provided excellent research assistance. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at [http://www.bostonfed.org/economic/wp/index.htm](http://www.bostonfed.org/economic/wp/index.htm). This paper presents preliminary analysis and results intended to stimulate discussion and critical comment. The views expressed herein are those of the author and do not indicate concurrence by the Federal Reserve Bank of Boston, or by the principals of the Board of Governors, or of the Federal Reserve System. This version: June, 2018 1 Introduction State colleges and universities play a crucial role in providing higher education in the United States. In fall 2010, 76 percent of undergraduate students attended public degree-granting institutions, while only 15 and 10 percent of undergraduate students attended private nonprofit and for-profit institutions, respectively (National Center for Education Statistics 2012) . State governments support public higher education for reasons of efficiency and equity. In terms of efficiency, higher education generates many social and fiscal benefits. For example, there are positive spillovers from college graduates on wages and productivity (Glaeser and Saez 2004, Moretti 2004a, Moretti 2004b, Rosenthal and Strange 2008) . Human capital spillovers are generated likely via the sharing of knowledge and skills among workers and are geographically localized. Higher education also generates long-term local economic growth. Simon (1998), Simon and Nardinelli (2002), and Shapiro (2006) show that metropolitan areas with a higher percentage of college-educated residents experience faster employment growth. Moreover, universities’ research activities create positive externalities to industries (Jaffe 1989 ; Bania, Eberts, and Fogarty 1993 ; Mansfield 1995 ; Mansfield and Lee 1996 ; Anselin, Varga, and Acs 1997; Adams 2002 ; Zheng and Slaper 2016) . These research activities particularly benefit companies located near the universities because the spillovers are often concentrated in a small geographic area. Higher education lowers crime rates as well. Lochner (2004) finds that college education has a strong negative impact on both property and violent crime. Further, higher education improves civic engagement. Dee (2004) shows that higher educational attainment increases voter

FAQs

What is the main revenue source discussed for public higher education?

State appropriations are described as the largest revenue source for public higher education in the United States.

How does the paper assess the effects of state appropriations?

It provides a more comprehensive study than previous research and tests how effects vary across institutional types.

Which institutions are highlighted as particularly vulnerable to state funding cuts?

Community colleges are shown to be especially vulnerable to the negative effects of state appropriation cuts.

Oct 15, 2026

Uploaded by Jacob