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

22 The Benefits to Taxpayers from Increases in Students’ Educational Attainment
evidence showing that higher wages reduce crime (e.g., Machin and Meghir, 2000;
Viscusi, 1986).
Educational attainment reduces the likelihood and average duration of incarceration
in prisons and jails. These reductions, in turn, reduce demands on the public treasury
to build and operate prisons and jails. We model per-person correctional spending
as the product of per-person incarceration expenditure and likelihood of individual
incarceration. We use the Sourcebook of Criminal Justice Statistics, 2003 (Pastore and
Maguire, 2005) to compute the per-inmate cost of incarceration. We assume that cost
per inmate is independent of an inmate’s education level.
For state prisons, we use the 1997 administration of the Survey of Inmates in
State and Federal Correctional Facilities (U.S. Department of Justice, Bureau of Justice
Statistics, and U.S. Department of Justice, Federal Bureau of Prisons, 2001) to estimate
the incarcerated population for each education-age-race/ethnicity-gender combination.
We also use the 1997 Current Population Survey to estimate general population
counts in each corresponding subgroup. Because the Current Population Survey
does not include incarcerated persons, we calculate the probability of incarceration as
the number of prisoners in each population category divided by the sum of the general
population and the number of prisoners for that category.
We follow the same procedure for county and municipal jails, using the 2002
Survey of Inmates of Local Jails (U.S. Department of Justice, Bureau of Justice Statistics,
2006) and, correspondingly, the 2002 Current Population Survey.
Estimating the Effects of Increased Education
We use the models we developed to project the taxes that individuals with given characteristics
and a given level of education would pay, the social program benefits they
would receive, and the incarceration costs they would impose in each year of their lives
from the age at which they left school through age 79. We assume the school-leaving
ages are 16 for high school dropouts, 18 for high school graduates, 20 for students who
pursue some college, and 22 for students who earn a bachelor’s degree.
We use the federal and state income tax and the payroll tax models to estimate
the taxes that an individual with given demographic characteristics and education level
would pay in each year of his or her life from school-leaving age to age 79. We then
discount the estimates for each year of the individual’s life to age 18, using appropriate
survival rates for the individual’s demographic group to control for the probability that
a person will die at any given age. The result is an estimate of the present value at age
18 of the taxes an individual from that demographic group will pay between schoolleaving
and age 79, given his or her education level. We then compare the results for an
individual with a given level of education and characteristics against the corresponding
results for an individual with the same characteristics but a higher level of education.