1

Efficient use of Economic Rents: Reconsidering GATEElizabeth Ince, Roger Hosein, Martin

Franklin

2

Introduction to the GATE Programme

2001: Dollar for Dollar programme – 50% TLE

Tuition Funding

2004: GATE Programme – 50%

Tuition Funding + Up to 100% Tuition

Funding based on Means Test

2006: GATE Programme Modified – 100% Universal Tuition

Funding for persons wishing to pursue TLE

3

The GATE Programme

One of the major goals created for the GATE programme was the attainment of a tertiary participation rate of 60% by 2015. By 2008, the tertiary participation rate within Trinidad and Tobago had increased to 40% (Trinidad and Tobago International Financial Centre). By 2012, the tertiary participation rate stood at 46% (Ministry of Tertiary Education and Skills Training, 2012).

In addition to the increase in the tertiary participation rate, the introduction of the GATE Programme “brought with it a mushrooming of private tertiary level institutions.”

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Expenditure on and Beneficiaries of GATE Programme

  Total Expenditure $TT (Millions)  

Fiscal Year Private Institutions Public Institutions Number of

Students Receiving

GATE Funding

2004/2005 30 72 27,214

2005/2006 70 110 38,669

2006/2007 244 229 57,328

2007/2008 232 270 53,437

2008/2009 240 335 52,822

2009/2010 236 349 53,711

2010/2011 281 344 45,040

Report of the Standing Committee on the GATE Programme (2011)

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TLE – The Merit GoodDefining the Nature of the good TLE

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Function of Higher Education

Non-Excludability Non-Rivalry

Teaching Does not have the characteristic of non-excludability since it is possible to bar the entry of students based on their willingness to pay.

Has the characteristic of non-rivalry since the presence of an additional student does not reduce the ability to learn of another.

Research Does not have the characteristic of non-excludability since persons may be prevented from accessing knowledge through the use of patents or making research private.

Has the characteristic of non-rivalry since if an additional person benefits from knowledge, it does not reduce the ability of another to benefit from the same knowledge.

Provision of services Does not have the characteristic of non-excludability since access will be limited based on willingness to pay for the service.

Does not have the characteristic of non-rivalry since only the person/persons interacting with the TLI’s representative will benefit from the service at one time. Also, an additional cost will be attached if another person were to benefit from the service.

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Table 1: Key Macroeconomic Indicators for Trinidad and Tobago, 1999-2001 and 2009-2011p.

Year Real GDP TT$m2000=

100

Growth Rate of Real GDP (%)

Unemployment Rate (%)

Inflation Rate (%)

Crude oil production (000 barrels per day)

Price per barrel of crude oil (US$) West Texas Intermediate

Petroleum Industries Contribution to GDP TT$mn (b)

Natural Gas Prices

Reserve to Production Ratio

1999 45978.6 4.4 13.2 3.4 126.8 17.7 14302.2 2.08 15.1

2000 49335.1 7.3 12.2 3.5 130.5 29.0 16072.8 2.27 16.4

2001 51447.2 4.3 10.8 5.6 113.5 19.8 16920.5 4.23 19.9

2009 88744.5 -3.5 5.5 12.2 163.3 53.56 37582.1 8.85 8.1

2010 90975.1 -1.2 6.4 10.5 152.4 71.21 38625.0 3.89 8.0

2011p 88060.8 -1.4 6.3 2.7 91.92 83.00 38281.4 4.39 8.1

Sustainability of the GATE Programme

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Economic Analysis of the Efficiency of the GATE

ProgrammeHorizontal Efficiency vs Vertical Inefficiency

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$P

Y

AD0

AD1

Y0 Y1

P0

?

?

AS0LR AS1

LR

AS1SR

0

Figure 1: Intended Policy Influence of GATE

AS0SR

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Figure 2: Effect of “Oil Windfall” GATE on Income of Households Pursuing TLE

A

B

Hp

Y1d

Hm

Hr

0

YGd

Yr

YrG

Income of Households

Financial Need

Ym

Yp

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Economic Analysis of the Efficiency of the GATE

ProgrammeCase study of Trinidad and Tobago

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Comparison of Household Expenditure and Access to GATE by Income Group of Head and Household

Income GroupIncome Group (TT$) Average Size of

Household by

Income Group of

Head

% Accessing GATE

Funding by Income

Group of Head

Percentage

Distribution of

households by

Household Income

Group

Number of

Households by

Household Income

Group

Average Monthly

Savings per

household by

Household Income

Group

All Income Groups 3.4 0.9 100.0 7,090 $1033.60

Less than 1,000 3.8 0.5 2.0 142 $114.10

1,000-2,999 3.1 0.2 10.4 737 $298.50

3,000-4,999 3.3 0.3 17.0 1,205 $292.90

5,000-6,999 3.4 1 17.2 1,219 $503.40

7,000-8,999 3.5 1.8 14.0 993 $767.50

9,000-10,999 3.4 4.6 11.7 830 $981.20

11,000-12,999 3.3 2.9 7.6 539 $1389.50

13,000-14,999 3.3 5.5 5.2 369 $1706.70

15,000-16,999 3.3 1.5 3.9 277 $1894.40

17,000-18,999 3.3 7.9 2.9 206 $2110.60

19,000-20,999 4.1 0 2.1 149 $2256.80

21,000-22,999 4.1 0 1.5 106 $3418.00

23,000-24,999 2.9 0 0.9 64 $3293.80

25,000 and Over 3.2 5 3.6 255 $5079.90

Source: Trinidad and Tobago Household Budget Survey 2008/09*7,090 Households Participated in this Survey

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Establishing the Financial Need

The True Proportion Needing Financial Assistance

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Calculation of persons’ financial need, with respect to the amount needed to fund TLE, reveals the extent of their financial need based on their per capita income in comparison to the average national per capita income of Trinidad and Tobago.

The financial need gap is calculated using the national income per capita (Yn) in comparison to the actual average per capita income (Yi) of households, as can be found in the Household Budget Survey  

Financial Need =

Establishing the Financial Need

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Income Group by Head (TT$)

Per Capita Monthly Household Income

Financial Need Index

(Yn - Yi)/Yn

Average Monthly University Fees per Student

Average Monthly per Capita Household Income And Average Monthly University Fees

Average Monthly

Savings per Household by

Income

All Income Groups $2,744       $1,034<1000 $125 0.95 $623 $748 $1141000-2999 $930 0.66 $623 $1,553 $2993000-4999 $1,467 0.47 $623 $2,090 $2935000-6999 $1,943 0.29 $623 $2,567 $5037000-8999 $2,300 0.16 $623 $2,923 $7689000-10999 $2,697 0.02 $623 $3,320 $98111000-12999 $3,049 0.00 $623 $3,672 $1,39013000-14999 $3,447 0.00 $623 $4,071 $1,70715000-16999 $3,857 0.00 $623 $4,481 $1,89417000-18999 $4,525 0.00 $623 $5,149 $2,11119000-20999 $4,755 0.00 $623 $5,378 $2,25721000-22999 $4,917 0.00 $623 $5,541 $3,41823000-24999 $5,390 0.00 $623 $6,014 $3,294>25000 $7,911 0.00 $623 $8,534 $5,080

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Income-Contingent Loans

Application to Trinidad and Tobago

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Source: Adapted from “Investing in Human Capital” (Palacios Lleras, 2004,pg 178)

Figure 3: Illustration of Income-contingent payments with a subsidised interest rate

(X0)*p = PV of loan

X0

Present value of payments

Accumulated income during life of contract

S(i,y) Loan Amount

α

D*L

Mechanics of an ICL

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Students’ repayment is contingent upon future income. Therefore, those benefitting less from their investment in TLE are effectively subsidised.

Repayment commences only after graduate reaches a certain income threshold.

Maximum repayment by the graduate is equal to the original value of the loan in present value terms.

Can include a maximum repayment period after which the loan is forgiven.

Equitable form of student loans Benefits students of all income brackets

Advantages of an ICL

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Percent %Income Group

Educational Attainment of HeadAll Household Members

None Pre-School

Primary School

Secondary School

University Other N/A Not Stated

All Income Groups

100 100 100 100 100 100 100 100 100

None 32.3 32.5 29.6 26.3 36.3 30.5 26.7 80.0 45.8Less than 1000

5.4 6.0 6.2 6.2 5.4 3.2 3.1 80.0 6.8

1000-2999 22.8 50.4 39.5 37.2 17.2 5.3 14.3 20.0 20.33000-4999 17.9 6.4 17.3 18.5 19.0 8.3 18.7 0.0 16.95000-6999 10.1 2.1 1.2 6.7 11.6 12.4 13.4 0.0 6.87000-8999 4.9 2.1 4.9 2.8 5.0 10.4 9.1 0.0 1.79000-10999 2.7 0.4 0.0 1.1 2.5 9.5 5.3 0.0 0.011000-12999 1.5 0.0 0.0 0.4 1.2 6.7 3.5 0.0 1.7

13000-14999 0.8 0.0 0.0 0.3 0.6 3.4 2.1 0.0 0.0

15000-16999 0.5 0.0 1.2 0.2 0.4 2.7 1.4 0.0 0.0

17000-18999 0.3 0.0 0.0 0.1 0.3 1.7 0.7 0.0 0.0

19000-20999 0.2 0.0 0.0 0.1 0.1 1.0 0.5 0.0 0.0

21000-22999 0.1 0.0 0.0 0.1 0.1 0.5 0.2 0.0 0.0

23000-24999 0.1 0.0 0.0 0.0 0.0 1.0 0.1 0.0 0.0

25000 and Over

0.4 0.0 0.0 0.0 0.2 3.4 0.8 0.0 0.0

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Aspect of Deferred Payment Scheme

Application in Trinidad and Tobago

Income Thresholds and Percentage of Salary to be Repaid

$7,000 – 3%; $13,000 – 5%; $21,000 – 8%

Repayment Collection System Board of Inland RevenueInterest Rate Reflects yearly inflationDiscount Rate 20% off Up-Front TuitionMaximum Duration of Loan 25 yearsAlternative Repayment Options Repayment of full loan at any

point in time.Conversion to traditional bank loan with market based interest rate.

Application to Trinidad and Tobago

NB: The proposed ICL structure is a work in progress.

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Universal subsidising of tertiary level education within Trinidad and Tobago is an inefficient use of rents from the sale of petroleum as can be seen in the:◦ Review of the 2008/09 Household Budget Survey◦ Review of the Financial Need of Households with

persons pursuing TLE Use of an Income-Contingent Loan

efficiently subsidises the merit good TLE for students.

Conclusion

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Thank you.