Optimal-Sized Tuition Tax Credits Reconsidered: Comment

Abstract

In a recent article, Martinello and West (1988) argued that a tuition tax credit, while costing the federal government lost revenue, would provide substantial net governmental savings when all levels of government are considered This article demonstrates that their conclusion is highly contingent on the assumption of an infinitely elastic supply of private education. In a more general analysis that allows both demand and supply elasticities to vary, it is demonstrated that a tuition tax credit in most plausible cases results in far smaller savings or even net costs to all levels of government. This analysis further shows that if the government objective really were to maximize net governmental savings on education, then a private enrollment tax, not credit, might be the way to accomplish the goal. Again, conclusions are contingent on demand and supply elasticities.