Competitive Effects of Means-Tested School Vouchers
Author: Figlio, David N.
Date: 2010-00-00
Type: Reports - Research
Subjects: Private Education,School Choice,Tax Credits,Social Theories,Educational Finance,Private Schools,Competition,Context Effect,Public Schools,Students,Standardized Tests,Academic Achievement,Attendance

School choice options--including both voucher and neo-voucher options like tuition tax credit funded scholarship programs--have become increasingly prevalent in recent years (Howell, Peterson, Wolf and Campbell, 2006). One popular argument for school choice policies, drawing from economic theory, is that public schools will improve the education they offer when faced with competition for students. Because state funds are tied to student enrollment, losing students to private schools constitutes a financial loss to public schools. If schools face the threat of losing students--and the state funds attached to those students--to private schools, they should be incentivized to cultivate customer (i.e., parental) satisfaction by operating more efficiently and improving on the outcomes valued by students and parents (Friedman, 1962). Alternatively, vouchers may have unintended negative effects on public schools if they draw away the most involved families from public schools and the monitoring of those schools diminishes, allowing schools to reduce effort put into educating students (McMillan, 2004). However, it is generally difficult to gauge the competitive effects of private schools on public school performance because private school supply and public school performance affect each other dynamically. While private school supply may affect the performance of public schools, public school performance may also affect private school supply if poor public school performance increases the demand for private school education, encouraging the establishment of new private schools. Several factors may drive demand, including the cost of tuition, the ease of access to private school options (having schools nearby should lower transportation costs associated with private school attendance), and the variety of types of schools available (a wide range of religious denominations as well as secular options should increase the odds that families can find schools that suit their particular tastes). The interaction of these factors may be especially important. This paper tests this economic theory by examining the effect of competitive threats from private schools on the standardized test performance of children attending public schools. Specifically, the authors examine whether students in schools that face greater threat of losing students to private schools due to the introduction of a tuition tax credit scholarships improve their test scores more than do students in schools that face less pronounced threats. The results suggest that policies that introduce competition to public schools spur improvements in public school students' test scores. This work therefore helps inform a major policy debate regarding whether harnessing market forces is an effective way to help not only the students who enter the private education market, but also the students who remain behind in the public sector. Moreover, this effect is stronger for students who are themselves eligible for the program. (Contains 3 tables.)