Government Ideology and Tuition Fee Policy: Evidence from the German States

CESifo Economic Studies, Vol. 59, 4/2013, 628–649 doi:10.1093/cesifo/ift007 Advance Access publication 11 July 2013 Government Ideology and Tuition Fee Policy: Evidence from the German States Björn Kauder* and Niklas Potrafkey Abstract In January 2005, the German Supreme Court permitted the state governments to charge tuition fees. By exploiting the natural experiment, we examine how government ideology influenced tuition fee policy. The results show that right-wing governments were active in introducing tuition fees. By contrast, left-wing governments strictly denied tuition fees. This pattern shows clear political alternatives in education policy across the German states: the political left classifies tuition fees as socially unjust; the political right believes that tuition fees are incentive compatible. By the end of 2014, however, there will be no tuition fees anymore: the political left won four state elections and abolished tuition fees. In Bavaria, the right-wing government also decided to abolish tuition fees because it feared to become elected out of office by adhering to tuition fees. Electoral motives thus explain convergence in tuition fee policy. (JEL codes: D72, I22, I28, H75) Keywords: tuition fees, education policy, government ideology, partisan politics 1 Introduction Government ideology is likely to influence education policy. Conventional wisdom has been that left-wing governments spend more on education than right-wing governments. The partisan theories predict that political parties gratify the needs of their constituencies. Left-wing parties have received a great deal of electoral support by the working class and lowincome voters. Because the working class and low-income voters may not afford to finance private education or to pay tuition fees, left-wing governments are expected to publicly finance education. Electoral cohesion has however declined, and party positions have moved. Left-wing governments do no longer represent the working class but rather the middle class. It is conceivable that politicians gratify their constituencies by spending money on higher and lower education. We elaborate on theoretical predictions and empirical findings in Section 2. The introduction of tuition fees in Germany in 2006 is an especially worthwhile objective to investigate ideology-induced education policies ß The Author 2013. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: 628 *Ifo Institute, Department of Public Finance, Poschingerstr.5, D-81679 Munich, Germany, Phone: þ 49 89 9224 1331, Fax: þ 49 89 907795 1331, e-mail: y University of Munich, Center for Economic Studies, Schackstr. 4/I, D-80539 Munich; Ifo Institute, Department of Public Finance, Poschingerstr.5, D-81679 Munich, Germany, Phone: þ 49 89 9224 1319, Fax: þ 49 89 907795 1319, e-mail: Government Ideology and Tuition Fee Policy 2 Government ideology and education policy Left-wing governments are expected to spend more on education than right-wing governments. The significant difference between left-wing and right-wing governments in the education system is that left-wing governments favor the expansion of public authority in the education system, whereas right-wing governments favor private alternatives (Busemeyer 2009). In Switzerland, for example, social democratic ideology has had a negative influence on privatizing education (Merzyn and Ursprung 2005). Scholars have investigated the influence of government ideology on total education spending and often find that overall education spending was higher under left-wing governments in OECD countries (Boix 1997, 1 2 3 Scholars have investigated how the adaption of tuition fees in Germany has influenced mobility of university applicants (Dwenger et al. 2012, Alecke and Mitze 2012) and students’ enrollment decisions (Hübner 2012, Dietrich and Gerner 2012). Right-wing governments in the German states have also been shown to increase police employment (Tepe and Vanhuysse in press). See Kemnitz (2007, 2010) on how tuition fees influence the quality of higher education, and Schindler (2011) on how tuition fees influence the labor tax schedule. Poutvaara and Kanniainen (2000) study a social contract on financing higher education between high-ability and low-ability agents, implemented using tax schedules. Poutvaara (2011) studies how subsidies to higher education and income tax schedule interact in the political process. CESifo Economic Studies, 59, 4/2013 629 because of two reasons.1 First, tuition fees were not allowed in Germany for a long time. In January 2005, the German Supreme Court permitted the state governments to introduce tuition fees. Second, government ideology did not play an important role in economic policy-making at the federal level (e.g. De Haan and Zelhorst 1993, Berger and Woitek 1997, Potrafke 2012). Policies of the right-wing Christian Democrats and the left-wing Social Democrats have converged. Germany is however a federal state with 16 individual states (Laender). It is conceivable that government ideology influences economic policy-making at the state level. The German Laender governments have hardly any means to raise taxes and are also restrained in many policy fields. But the Laender governments are responsible for education policies. An intriguing question therefore is whether ideological differences are transpired by education policies in the German Laender. Previous research has shown that government ideology influences public spending for universities and schooling (Oberndorfer and Steiner 2007, Wolf 2007, Potrafke 2011a).2 Introducing tuition fees has been controversial across the German states. By exploiting the natural experiment, we examine how government ideology influenced tuition fee policies.3 B. Kauder and N. Potrafke 4 5 6 7 Consumption values of higher education may also differ across individuals (Alstadsæter 2011). Schulze’s (2008) results suggest that conservative politicians tend to spend more on research in relative terms. The results by Tepe and Vanhuysse (2009) show that incumbents accelerated hiring of new teachers before elections in the German Laender. In a similar vein, public employment increased before elections in Finland and Sweden (Dahlberg and Mörk 2011). To be sure, the model by Ansell (2008) views partisan choices on higher education ‘in a trilemma between the level of enrollment, the degree of subsidization, and the overall public cost of higher education’ (p. 190). On ideology-induced education policy, see also Iversen and Stephens (2008). Fisher et al. (2009) discuss the political economy of post-secondary education in three Canadian provinces. 630 CESifo Economic Studies, 59, 4/2013 Schmidt 2007, Busemeyer 2007 and 2009, Ansell 2008, Potrafke 2011b). By contrast, the results by Jensen (2011) do not suggest that overall education spending was higher under left-wing governments (...truncated)