As the demand for education increases, resources remain scarce. In most countries, the government is both the major financier as well as the provider of education. However, schooling still does not reach all members of society equally.
The public sector, unlike the government does not necessarily need to promote and finance education. Therefore, in some countries there are other providers, such as religious schools, home schools, and private schools – which are both for-profit and not-for-profit.
One way of financing education is to provide families with the funding – via cash transfers to schools based on enrollments or by providing cash to families to purchase schooling – in other words- through vouchers. The objective of a voucher program is to extend the financial support from the government to these other education providers and thus give all parents, regardless of income, the opportunity to choose the school that best suits their preferences.
The most rigorous studies show that voucher programs lead to significant improvements in both access to secondary schooling for relatively poorer students as well as increases in test scores. Additionally, studies show that voucher recipients are more likely to complete secondary school, enter university, postpone marriage, and increase their earnings
School choice via vouchers is often promoted as a means of increasing competition in the school system. Advocates believe that competition will lead to efficiency gains, as schools – public and private – vie for students and try improving quality while reducing expenses. The idea is that when private schools are encouraged to attract students, they become innovative and thereby bring improvements to the learning process. Likewise, public schools, to attract students and the resources that come with them, seek to improve themselves to provide an education at par with the private schools. Thus, vouchers will lead to improved learning outcomes and increased efficiency in both types of schools.
On the other hand, opponents believe that under a voucher system, private providers will be unaccountable to taxpayers and the public. They question claims of efficiency gains. They assert that choice will lead to privatization, less public control of education, and increased segregation. While all concerns need to be taken into consideration, the decision on how to finance education need be based on evidence.
Essentially, there are two types of voucher programs: targeted or universal.
Targeted Vouchers: For Example, in Colombia, the Program for the Expansion of Secondary Education Coverage (or PACES, its acronym in Spanish) was launched in 1991, to provide the poorest third of its population access to secondary education. The program was oversubscribed, so students selected by a lottery were provided with vouchers to attend private schools. Municipal governments provided 20 percent of the funding for PACES; the federal government provided the remainder. The program, which ran until 1997, covered 125,000 children in 216 municipalities. The unit cost per student for participating private schools was 40 percent lower than for non-participating private schools.
The lottery allocation provides researchers with a natural experiment. Robust findings from the analysis show that that voucher beneficiaries have higher educational attainment. Three years after they received the vouchers, they were 10 percent more likely to finish the eighth grade. When compared with non-voucher students, voucher students were 6 percent less likely to repeat a grade; they scored 0.2 standard deviations higher on achievement tests and they were 20 percent more likely to take the college entrance exam. They were also less likely to be married and earned more in wages.
Universal Vouchers: Chile is the only developing country (excluding transition countries) to have a universal voucher program. This has been in place since 1980. Each month, every municipality receives individualized grants based on the number of students attending class in its schools. The municipal authorities also fund student attendance at subsidized private schools, which parents can choose. Subsidized private schools have proven to be slightly more cost-effective than municipal schools. While test scores are similar in both, after controlling for socioeconomic status, unit costs are lower in subsidized private schools.
Research on Chile’s voucher program has been subject to a high level of scrutiny. Though there are no randomized trials or rigorous impact evaluations, a lot of research has been done and the results have been mixed. Some find small average treatment effects, others find large treatment effects, and a few others find no effect. One study finds evidence that the voucher program leads to increased sorting, as the “best” public school students leave for the private sector.
Beyond schooling outcomes, two studies find positive effects in terms of labor market outcomes. Beneficiaries of the reform earn a substantial premium in the labor market. The voucher program induced individuals to attend private subsidized schools, achieve higher educational attainment, receive higher wages and participate more effectively in the labor force. Returns to both public and private education increased after the introduction of vouchers. Since 1995, only one other country has improved faster than Chile in international student assessment tests.
Netherlands is another country which illustrates the effectiveness of vouchers. 70 percent of the enrollments are in government-financed private schools. On average, these students tend to be from families which belong to a lower social class when compared to those from which pupils attend public school, and yet test scores achieved are higher. The level of choice offered, alongside fixed funding from government per student (with additional funding for disadvantaged students) appears to provide incentives for Dutch schools to keep improving. At the same time, given the need for the schools to compete for students by demonstrating success, there’s no evidence of grade inflation.
These above examples clearly demonstrate that vouchers can help countries improve their education systems. But it is also clear that this depends on how the system is arranged. Any reform requires pilot testing and rigorous impact evaluation before being taken to scale.
Further reading
Angrist, J., E. Bettinger, E. Bloom, E. King and M. Kremer. 2002. “Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment.” American Economic Review 92(5): 1535–58.
Angrist, J., E. Bettinger and M. Kremer. 2006. “Long-Term Educational Consequences of Secondary School Vouchers: Evidence from Administrative Records in Colombia.” American Economic Review 96(3): 847–862.
Barrera-Osorio, F. and H.A. Patrinos. 2009. “An International Perspective on School Vouchers.” In M. Berends, M.G. Springer, D. Ballou and H.J. Walberg, eds., Handbook of Research on School Choice. New York: Routledge.
Bravo, D., S. Mukhopadhyay and P.E. Todd. 2010. “Effects of school reform on education and labor market performance: Evidence from Chile’s universal voucher system.” Quantitative Economics 1(1):47-95.
Gallegos, F. 2006. “Voucher-School Competition, Incentives and Outcomes: Evidence from Chile.” Cambridge, MA: Massachusetts Institute of Technology.
Hanushek, E.A., P.E. Peterson and L. Woessmann. 2012. “Achievement Growth: International and U.S. State Trends in Student Performance.” Harvard’s Program on Education Policy and Governance & Education Next, Taubman Center for State and Local Government, Harvard Kennedy School, PEPG Report No. 12-03.
Hsieh, C.-T. and M. Urquiola. 2006. “The effects of generalized school choice on achievement and stratification: Evidence from Chile’s voucher program.” Journal of Public Economics 90 (8-9): 1477–1503.
Patrinos, H.A. 2012. “Private education provision and public finance: the Netherlands.” Education Economics, forthcoming.
Patrinos, H.A. and C. Sakellariou. 2011. “Quality of Schooling, Returns to Schooling and the 1981 Vouchers Reform in Chile.” World Development 39(12): 2245-2256.