In this paper we raise a question: Does it matter for a national economy whether its educational system is based on tuition or free of charge higher education? Since the well-known “Mincer-Earnings-Equation” in the early 1970s, there has emerged an extensive literature concerning the monetary returns on higher education for individuals. Personal tuition fees of higher education are considered as a typical private investment in higher personal incomes. In addition, tuition free higher education has been opposed on the basis of its unfairness. It is unequal that less educated tax-payers support higher incomes of some privileged highly educated citizens. On the other hand, it is largely recognized that the production of knowledge by education (i.e. human capital accumulation) induces self–sustained economic growth for a whole economy (e.g. Lucas 1988). Moreover, if higher education generates significant positive externalities (i.e. the benefits of higher education are shared by the participants and the rest of society) it may follow that it is reasonable for the costs of education to be shared as well. However, it remains unclear, if such effects exist, what are the main differences if higher education is based either on tuition or tuition-free system, and, further, what is the role of public sector. As a preliminary step to this problem, our approach is evaluative.

Tuition based systems are dominating internationally. At present, only few countries in addition to Nordic Countries have adopted tuition-free higher education system. There are growing international and political pressures to adopt tuition also in these countries. Thus, it is of the greatest importance to acquire research knowledge in this matter.

First, we briefly review the relevant – theoretical as well as empirical – economic literature. Next, we discuss the potential economic benefits and costs of tuition-free higher education system in terms of dynamic efficiency. We suggest an eclectic approach, where aspects of endogenous growth theory, economics of dynamic public sector policy, and, finally, welfare economics are highlighted. Criterion for national success is the balanced growth path with welfare maximization. We strengthen theoretical discussion with the empirical discussion of the possible evidence in national performance. That is, we argue that there are possible links between national success indicators, like competitiveness and welfare, and tuition-free higher education. Empirical interpretations are based on international statistical comparisons.