Fostering Educational Enrolment Through Subsidies: The Issue of Timing

In this paper we build a dynamic structural model of educational choices in which cognitive skills shape decisions. The model is estimated by maximum likelihood using cohort data where individuals are observed from birth onwards. These data are unique in that they include cognitive skills test scores collected as early as age 7. We then simulate the e?ect of two educational subsidies equal in cost but different in the timing of disbursement. The ?rst consists of grants assigned directly to individuals aged between 16 and 18. The second is assigned to the parents earlier on, when the cohort is still in its childhood. The latter subsidy affects cognitive skills accumulation and in turn educational choices. Our results suggest that a direct grant in the form of a tuition subsidy might be more efficient even in the absence of short term ?nancial constraints. Although cognitive skills accumulated during childhood play a key role in the educational decisions, an unconditional ?nancial subsidy to parents is not the best policy. The results do not call a halt to investments in cognitive skill accumulation during childhood, but recommend that such investments should be well structured and ensure a high return.