Abstract

This study estimates the extent that state financial support for higher education raises college attainment. Despite its manifest importance for policy, this is the first study to estimate this effect directly. Many studies have estimated the effect of college price on attendance, but state support for higher education and college price do not have a one-to-one correspondence. Moreover, state support for higher education can affect enrollment through college quality, not just price. A two-stage instrumental-variables approach is employed to account for the possibility that state funding for higher education may endogenously depend on anticipated college enrollment. Using 22 years of U.S. interstate data (1985-2006) and controlling for fixed state effects, the results of this study indicate that state funding for higher education has significant causal effects on both college enrollment and degree attainment. The estimated state-support elasticity of college enrollment and college degree attainment is about 0.35.

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