The Optimal Size of the Tuition Tax Credit

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Abstract
If we assume that price elasticity of demand for private schooling is 0.5, education tax credits even as low as $250 can be expected to reduce total government expenditure on education quite significantly. Recent empirical measures of such elasticities, however, are much higher. Based on these, a tax credit in the region of $1,000 would reduce expenditures by over $3.4 billion. If taxes are reduced accordingly, the gains to taxpayers would be higher to the extent of an appreciable reduction in marginal deadweight losses from the tax system.

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