The Benefits to Taxpayers from Increases in Students - RAND ...

Chapter Two
Analytic Approach
There is abundant evidence that people with more schooling earn higher wages and
salaries. There is also evidence that more highly educated people are more likely to be
employed and to work full-time when employed. A direct result of higher earnings
and greater employment is increased income and, consequently, increased payments in
income taxes and “consumption” taxes, such as sales, real estate, and excise taxes. Also,
individuals with higher incomes are more likely to succeed using their own resources
and, consequently, less likely to use social support systems. Finally, individuals better
able to support themselves are less likely to resort to crime and, consequently, less likely
to be incarcerated.
We use a nationally representative sample of roughly 40,000 individuals covered
in all months of 2002 by the SIPP (U.S. Census Bureau, 2005a, 2005b, 2005c) to
estimate the relationships between education level and various government revenues
and costs. 1 We use the estimated relationships between education level and various
government revenues and costs to project the effects of increases in an individual’s educational
attainment on governmental revenues and costs over the individual’s lifetime.
In doing so, we assume that the estimated relationships between education level and
governmental revenues and costs observed in 2002 will remain approximately the same
into the future.
In projecting the effects of increasing an individual’s education, we estimate his
or her contributions to and draws on public revenues from age 18 through age 79. We
assume that all schooling occurs consecutively and that the effects of an individual’s
educational attainment begin immediately on completion of schooling. For example,
we assume that a high school graduate attends school through age 17 and interacts
with the public budget from age 18 onward.
Independent Variables
The independent variables in the models described below are
1
Appendix A describes the data.
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