Did the Fiscal Stimulus Work for Universities? Chapter uri icon

abstract

  • We investigate how stimulus-motivated federal funding directed to universities affected their revenues, expenditures, employment, tuition, student aid, endowment spending, and receipt of state government appropriations. We also investigate how these funds affected the economies of the counties in which the institutions are located. To overcome the potential endogeneity of federal funds (for instance, federal student aid rising when students become poorer), we employ: (i) an instrument that applies nation-wide rates of increase in research funding by agency to universities whose initial dependence on these agencies differs; and (ii) an instrument that applies the change in the maximum Pell Grant to institutions with varying initial numbers of students eligible for the maximum grant. Our results suggest that federal funds induced private universities to increase research, reduce tuition, raise student aid, spend slightly more on many categories of expenditure, and slightly reduce endowment spending rates. These results are consistent with private universities maximizing objectives that require them to allocate funds over a broad array of activities. Our results suggest that public universities used federal funds as leverage to gain independence from state governments--gaining the ability to set tuition closer to market-based rates but losing state appropriations in the bargain. We find no evidence that federal funds directed to universities propped up aggregate demand or generated local economic multipliers in the classic Keynesian sense, but this is not surprising because only a small share of the federal funds "stuck where they hit."

author list (cited authors)

  • Dinerstain, M. F., Hoxby, C. M., Meer, J., & VIllanueva, P.

editor list (cited editors)

  • Brown, J. R., & Hoxby, C. M.

Book Title

  • How the Financial Crisis and Great Recession Affected Higher Education

publication date

  • January 2015