Does Competition Among Public Schools Benefit Students and Taxpayers?

TLDR

Tiebout choice among districts is a key market force in U.S. public education, but naive estimates are biased by endogenous district formation. The study uses natural geographic boundaries within a metropolitan area as instruments to identify the causal effect of Tiebout choice. Greater Tiebout choice is associated with more productive public schools and less private schooling, largely independent of household sorting, and does not alter student segregation by school.

Abstract

Tiebout choice among districts is the most powerful market force in American public education. Naive estimates of its effects are biased by endogenous district formation. I derive instruments from the natural boundaries in a metropolitan area. My results suggest that metropolitan areas with greater Tiebout choice have more productive public schools and less private schooling. Little of the effect of Tiebout choice works through its effect on household sorting. This finding may be explained by another finding: students are equally segregated by school in metropolitan areas with greater and lesser degrees of Tiebout choice among districts. (JEL H70, I20)