The debate regarding the increased funding of higher education has focused on specific issues, such as whether or not higher education should be financed through general taxation. This text explores the economic foundations of this debate and considers some of the interdependencies involved. In particular it focuses attention on the process of government decision making and the precise way that these decisions are affected by the possible external discussion of the role of the government's budget constraint. A specified model is used to consider the effects of alternative tax and grant systems on the distribution of lifetime income within a cohort of individuals. This model is extended to allow for the general equilibrium effects of other social transfers to the low paid, along with means testing of grants.
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