Tiebout choice and universal school vouchers

Abstract

This paper examines who is likely to gain and who is likely to lose under a universal voucher program. Following Epple and Romano [D. Epple, R.E. Romano, Competition between private and public schools, vouchers, and peer group effects, American Economic Review 88 (1998) 33–62; D. Epple, R.E. Romano, Neighborhood schools, choice, and the distribution of educational benefits, in: C.M. Hoxby (Ed.), The Economics of School Choice, The Univ. of Chicago Press, Chicago, 2003, pp. 227–286], and Nechyba [T.J. Nechyba, Mobility, targeting, and private school vouchers, American Economic Review 90 (2000) 130–146; T.J. Nechyba, Introducing school choice into multidistrict public school systems, in: C.M. Hoxby (Ed.), The Economics of School Choice, The Univ. of Chicago Press, Chicago, 2003, pp. 145–194], we focus on the idea that gains and losses under a universal voucher depend on two effects: changes in peer group composition and changes in housing values. We show that the direction and magnitude of each of these effects hinge critically on market structure, i.e., the amount of school choice that already exists in the public sector. In markets with little or no Tiebout choice, potential changes in peer group composition create an incentive for high-socioeconomic (SES) households to vote for the voucher and for low-SES households to vote against voucher. In contrast, in markets with significant Tiebout choice, potential changes in housing values create an incentive for high-SES households to vote against the voucher and for low-SES households to vote for the voucher. Using data on vote outcomes from California's 2000 voucher initiative, we find evidence consistent with those predictions.