Should We Tax Universities?

by Andrew Gillen

Felix Salmon begins a discussion that leads down an uncomfortable road by stating that university endowments should be taxed. The conversation quickly moves on from endowments to taxing secondary schools.

Matthew Yglesias:

But they’re certainly not charities. And as best one can tell, their main impact on the common weal is negative, drawing parents with resources and social capital out of the public school system and contributing to its neglect.

You’d have to believe that New York City’s public schools would be both better funded and free of this kind of nonsense if a larger portion of the city’s elite were sending their kids to them.

Felix Salmon agrees

There’s an analogy here to the studies showing the beneficial effects of homeownership... on the one hand, people who own their own homes do tend to live better lives. But on the other hand... by moving away from rental neighborhoods they effectively ghettoize those left behind.

Unless I'm missing something, that same argument holds for universities as well. If peer effects are present, then a case can be made that schools with high concentrations of desirable students should be taxed rather than subsidized.

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PS - I was somewhat surprised to realize that my dog Pockets maintains a blog. But I was very pleased to realize that while I'm away, she apparently reads my econ books and blogs out of the UK. One of her more insightful points:

Pockets:

If you wanted to convince me of a private school which is acting charitably, not profit-maximising, then you’d have to describe a system where pupils take the entrance exam – and then the *low*-scoring poor children are offered bursaries. That’s a school which is gambling on its ability to raise standards among disadvantaged kids. But no private school does that, and with excellent reason: the cost could be lower league table results for the school