Public financing and spending on tertiary education: Implications for fiscal deficit, growth, and welfare

Abstract This paper explores the impact of fiscal policies on growth, welfare, and public deficits in tertiary education financing using a two‐sector growth model. It evaluates trade‐offs between public and private funding, comparing scenarios with and without budget deficit constraints. The results suggest that shifting to a user fee system can promote growth, but growth and welfare cannot be maximized simultaneously. For Colombia, increasing government spending on education, such as expanding infrastructure or hiring more teachers, improves welfare, while subsidies for user fees are ineffective. The study provides insights into the efficiency of mixed funding systems for higher education.