Academic journal article Atlantic Economic Journal

Incremental State Higher Education Expenditures

Academic journal article Atlantic Economic Journal

Incremental State Higher Education Expenditures

Article excerpt

Introduction

This study analyzes various measures of state expenditures on higher education using a panel of data from 45 states for the years 1986 through 2005. (1) Results of panel stationarity tests indicate that each measure of state higher education spending is non stationary. Specifically, each series contains a unit root. It is shown that a unit root in higher education spending is consistent with the incremental model of government spending. The incremental theory argues that current expenditures on a government program are equal to expenditures in the previous period plus a marginal adjustment for changes in some set of economic, demographic, or political factors. To avoid problems associated with the use of non-stationary dependent variables in regression analysis, all measures of state higher education expenditures are differenced to induce stationarity. Panel regressions then are used to identify factors that significantly explain annual increments or changes in state higher education spending.

The regression analysis of increments to state higher education spending addresses several issues raised in previous papers. However, it is unclear if these prior studies used stationary dependent variables in their regressions. For example, Kane et al. (2003) provide evidence that increases in state Medicaid spending have "crowded out" or reduced state higher education expenditures. (Weerts and Ronca 2006) find that increases in elementary education and healthcare spending are associated with greater expenditures on higher education. (2) Kane et al. as well as Tandberg (2008) find that state higher education expenditures are procyclical. In Tandberg's study, a larger proportion of the population of a state either in poverty or above the age of 65 years is associated with lower higher education expenditures. Benton (1992) concludes that total state spending (net of federal funds) was directly related to federal aid to states for some time periods.

Results of this study indicate that stationary increments to state higher education spending are significantly procyclical. In addition, it is shown that the business cycle appears to have a larger effect on higher education spending than on overall state spending. Coefficient estimates are consistent with full adjustment of state higher education expenditures to population growth and over-adjustment of these expenditures to CPI inflation. (3) Larger state governments are associated with significantly greater increments to per capita real higher education expenditures. Federal higher education funds provided to states have a significant direct effect on increments to state funded higher education expenditures as a percentage of the adjusted state budget. This last result provides some support for the findings of Benton.

No significant support is found for the conclusion of prior studies that state Medicaid spending crowds out higher education spending. Similarly, no evidence is found that state spending on elementary education has any significant effect on higher education expenditures. States with a larger percentage of their population categorized as impoverished are found to experience significantly larger annual increments to per capita real higher education expenditures. These differences in results from those of previous investigations may be due to a variety of causes, including differences in the sample periods examined and the use of stationary data in this study.

Measuring State Higher Education Expenditures

Two measures of state higher education expenditures are examined for each of the 45 states. The measures are per-capita real higher education expenditures (PCRHE) and the percentage of the state budget allocated to higher education (PHE). (4) Two versions of each measure are examined. The first version includes federal higher education funds provided to the states and is referred to as gross expenditures. …

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