Too much to die, too little to live: Unemployment, higher education policies and university budgets in Germany

German educational spending per student has dramatically declined since the early 1970s. In this paper, we develop a theory of fiscal opportunism and argue that state governments exploit higher educational policies as an instrument of active labour market policy. By 'opening' universities to the masses and the extensive propagation of broader university enrolment during times of economic distress, state governments have an instrument at their disposal for lowering unemployment without generating negative budgetary implications. Thereby, the government pockets voter support not only by diminishing unemployment, but also by providing public goods particularly to the socially disadvantaged. At the same time, the state government risks a deterioration of educational quality owing to decreasing educational spending per student. We test our theoretical claims for the German states in a period ranging from 1975 to 2000 by means of panel fixed-effects models. The empirical results robustly support the hypothesis that rising unemployment ratios lead to increased university enrolment, but also significantly reduce the spending per student.