Who Pays for Higher Education?. A Note on the Neglected Role of Income Tax Progression

Do university graduates pay back the public subsidies which they received as students through higher income taxes? Assuming a life cycle version of the ability-to-pay-principle of taxation as the normative foundation, we suggest the "foregone smoothing benefit" concept (FSB) in order to obtain a meaningful answer to this question in the context of a system with progressive income taxation. The FSB-concept abstracts from tax-base-broadening-effects, but hinges on the "income condensing-effect". Using income data for academics and high-school graduates in Austria and the Austrian income tax schedule, we show that the fore-gone smoothing benefit may be quite sizeable.