Reference no: EM133250222

The new policy would replace the existing system that requires that students pay full tuition fees upfront and then apply to the government to receive a credit for tuition. For the sake of simplicity, assume that there are no credit constraints that might prevent students from paying tuition upfront. For a fixed amount of education, government expenditures on credits to students and subsidies to universities are equal. The existing reimbursement system has been criticized as being hard-to-understand and having too much paperwork, and take-up is relatively low. Using the concept of tax salience discussed in Chetty, Looney and Kroft (2009), discuss the differences in salience between the scenarios ii) and iii) and how the policies might affect the demand for post-secondary education. What are the implications of salience effects for the incidence of the government's policies on students and post-secondary institutions, respectively?