The long-term effect of competition on public school achievement: Evidence from the Indiana Choice Scholarship Program

Abstract

Despite a vast literature on school vouchers, less is known about their long-term competitive effects on public schools. The current paper examines the competitive effect of the Indiana Choice Scholarship Program, the largest single voucher program in the US, on math and ELA proficiency rates in public schools in the last eight years. Exploiting school vouchers' market share as the primary measure of competition, I use two-way fixed effects regression and event study framework to examine the competitive effect. Results indicate that, although competition has a positive effect in the earlier years, it is detrimental in the long term, suggesting that the program created a “voucher shock” that led to an improvement in the short term. However, in the long term, the proficiency rates in public schools that faced higher competition fell and never increased again. The trend of voucher recipients who have prior public-school attendance revealed that the worsening proficiency rates in the public schools that face higher competition were driven by the departure of relatively high achieving students, suggesting that school vouchers inspire sorting. The results are robust to alternative specifications that use the variation in the interaction between the market share of vouchers and geospatial measures of private school density.