School segregation in the presence of student sorting and cream-skimming: Evidence from a school voucher reform

This paper uses a reform to Chile’s school choice system to study student socioeconomic segregation with a focus on student demand and school selectivity. The reform increases the subsidies that schools receive for low socioeconomic status students. I exploit this shock to schools’ incentives to test for selection at admission based on students’ socioeconomic characteristics. Schools respond to the new voucher by decreasing the level of cream-skimming. I incorporate these admission restrictions in a demand model to estimate parents’ preferences for school and peer characteristics. I show that ignoring admission restrictions leads to underestimating poor parents’ preferences for school quality. Counterfactual simulations show that preferences of high-SES parents for high-SES peers are one of the main drivers behind segregation as opposed to schools’ selective behavior. This likely explains the unexpected increase in enrollment for schools that opted out of the reform and the ineffectiveness of the reform in reducing socioeconomic segregation across schools.