Last week, CD Howe released a very good paper (available here) written by my colleague, Christine Neill, on the subject of tax credits in higher education.  It’s an important piece, because it not only puts in one place a number of key factual aspects of tax credits (what they cover, how much they’re worth), but it also places them in the context of research on behavioural economics.  Given what we know about behavioural economics, she asks, what should we expect these huge – largely hidden – subsidies to achieve in terms of improving access? (The answer: not much.)

The three key bits for me are: 1) she has a nice, useful breakdown of how the credits are used (current students: 31%; transferred to parents/spouses: 38%; carried forward: 31%), which to my knowledge hasn’t been done before; 2) she has a great finding, showing that 42% of the total value of tax credits go to families in the top income decile; and, 3) she makes a reasonable case that the tax credits would be improved if they were refundable rather than non-refundable.

Christine and I agree on pretty much everything about this subject, so my comments are mostly niggles.  One thing missing is any discussion of the role of federalism in the development of tax credits.  The reason the feds have often preferred credits to student aid as a means to fund education is, simply, that they can do it without faffing around with the provinces.  Throw a couple hundred million at student aid, and its tough to avoid displacing existing provincial aid; throw it in tax credits, and it all gets to its intended recipients.  That’s not a negligible factor in their rise.

A second niggle is that, while I agree that refundable credits are preferable to non-refundable, I’m not sure how it would significantly improve many of the issues Neill raises with respect to behavioural economics. If the problem is that students don’t get the money right away, the fact that they’d get it 9 months after enrolment, instead of 21 or 33 months, doesn’t seem like a huge gain to me.

I’d actually go a bit further: In addition to refundability, focus on transferability.  Currently, transfers are limited to parents, grandparents, and spouses.  But why not include educational institutions on that list?  That way, institutions could prepare T2202As at the time students actually enrol; the student could sign it back to the institution at the time of fee payment, and the institution could provide the student with an instant rebate, and then claim the money back from the government itself.  Then we’d really be cooking with gas.

Food for thought, anyway.