This study sought to quantify economic impacts associated with Texas state expenditures on higher education by (1) quantifying the reduction in Texas' economic activity associated with reduced spending by the private sector due to taxes levied for higher education; and (2) quantifying the increase in Texas' economic activity associated with the expenditure of state tax funds for higher education. The study used a series of economic models to analyze input/output and benefit/cost. In particular equations were developed for the areas of income (or gross state product), payroll, and employment for use with data from "The Almanac of Higher Education: 1989-90", the "1988 Federal Tax Manual", the Texas Higher Education Coordinating Board, the Texas Comptroller of Public Accounts, the Census Bureau, the Department of Education, the Department of Commerce and the "1988 Texas Annual Financial Report." Results found that the state received an additional $1.13 in economic activity for every dollar invested in the public higher education industry in Texas. In addition, the study showed a net gain of $1,068 million in state income, a net gain of $345 million in state payrolls, and a net gain of 13,779 jobs. Included are 19 references. (JB)