CBA1Solutions

CBA1Solutions - A big issue facing the country is a the gap between the educational attainment of disadvantaged minorities and the majority of

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A big issue facing the country is a the gap between the educational attainment of disadvantaged minorities and the majority of Americans. There are myriad reasons for this gap, which we cannot get into at this point. The cost of the addtional education can be siginificant, but there are many benefits as well. Should society invest in the additional education required to close the gap? To evaluate this problem, let's look at the cost and benefits of increasing the educational attainment of one birth cohort -- everyone born this year. Assume the birth cohort lives 75 years. The annual cost of increasing the attainment of disadvantaged minorities is given by column B in the data sheet. (Note: given the dynamics of attainment, the policy to close the gap actual saves money in some years.) There are 3 sets of benefits. The first is the reduction in public spending on public assistance, social insurance, and incarceration that results from the change in attainment. The second is the increase in tax revenue that results from the higher income associated with the increase in attainment. Finally, there is the increase in private income associated with the increase in attainment. These benefits are in columns C, D, and E in the data sheet. Assume the social discount rate is 4 percent. What is the net present value of this policy to increase the attainment of disadvantaged minorities? How sensitive are these results to the discount rate?
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Education Expend- Tax Net Cost iture Revenue Income Age Increase Decrease Increase Increase 0 0 0 0 0 1 0 0 0 0 2 0 0 0 0 3 0 0 0 0 4 0 0 0 0 5 0 0 0 0 6 0 0 0 0 7 0 0 0 0 8 0 0 0 0 9 0 0 0 0 10 0 0 0 0 11 0 0 0 0 12 0.01 0 0 0 13 650.04 0 0 0 14 938.06 0 0 0 15 342.14 0 0 0 16 169.51 0 0 0 17 -56.9 0 0 0 18 -31.23 361.8 133.24 279.94 19 417.76 381.24 157.82 447.79 20 913.6 359.32 154.9 435.07 21 871.3 346.39 182.47 456.71 22 727.84 361.65 276.27 554.43 23 525.18 365.52 345.19 629.45 24 455.86 375.56 392.43 683.74 25 427.1 381.61 432.89 733.89 26 284.46 393.41 474.17 781.47 27 233.04 413.57 514.49 830.26 28 220.11 408.48 549.56 874.45 29 163.4 379.37 583.77 916.56 30 155.86 352.55 617.05 961.37 31 157.15 337.99 646.23 1001.21 32 158.3 334.99 675.13 1041.17 33 158.96 325.87 702.86 1080.11 34 159.05 315.79 730.39 1119.54 35 158.54 311.76 755.98 1156.91 36 158.11 303.29 779.44 1192.18 37 157.82 303.84 802.04 1227.26 38 156.77 299.65 820.69 1257.38 39 218.54 274.92 838.1 1286.85 40 0 266.27 861.86 1312 41 0 237.56 872.44 1333.17 42 0 238.94 882.34 1354.55 43 0 228.57 889.98 1373.77 44 0 239.4 896.01 1391.78 45 0 242.98 899.73 1407.41 46 0 243.12 902.82 1423.57 47 0 236.71 901.95 1434.93 48 0 236.21 900.09 1446.09 49 0 233.89 895.19 1453.83 50 0 238.82 888.46 1460.08 51 0 239.96 878.3 1462.15 52 0 248.71 864.46 1459.63 53 0 253.88 847.19 1452.78 54 0 263.21 828.62 1445.14 55 0 274.05 808.69 1436.62 56 0 286.73 786.82 1426.19 57 0 303.6 763.92 1415.31 58 0 306.73 736.81 1398.01 59 0 317.81 710.34 1383.03 60 0 323.84 681.18 1363.96 61 0 339.93 650.17 1341.83 62 0 344.84 615.87 1313.15 63 0 343.98 580.9 1282.3 64 0 338.14 545.91 1250.41 65 0 449.58 511.54 1218.13 66 0 356.06 476.46 1181.7 67 0 277.79 442.73 1144.69 68 0 207.38
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This note was uploaded on 10/30/2008 for the course ECON 103 taught by Professor Sandrablack during the Fall '07 term at UCLA.

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CBA1Solutions - A big issue facing the country is a the gap between the educational attainment of disadvantaged minorities and the majority of

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