Can increasing private school participation and monetary loss in a voucher program affect public school performance? Evidence from Milwaukee

The Milwaukee voucher program, as implemented in 1990, allowed only non-sectarian private schools to participate in the program. Following a Wisconsin Supreme Court ruling, the program saw a major shift and entered into its second phase, when religious private schools were allowed to participate for the first time in 1998. This led to more than a three-fold increase in the number of private schools and almost a four-fold increase in the number of choice students. Moreover, due to some changes in funding provisions, the revenue loss per student from vouchers increased in the second phase of the program. This paper analyzes the impacts of increase in competition brought about by these changes on public school performance in Milwaukee. Using data from 1987 to 2002, and a difference-in-differences estimation strategy in trends, the paper finds that these changes have led to an improvement of the public schools in the second phase of the program as compared to the first phase. The results are robust to alternative samples and specifications, and survive several sensitivity checks including correcting for mean reversion. The findings imply that voucher design matters and choice of parameters in a voucher program is crucial as far as impacts on public school incentives and performance are concerned.