How do School Vouchers Help Improve Education Systems?

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This is an excerpt from "School Vouchers Can Help Improve Education Systems" published on the Opinions section of the World Innovation Summit for Education (WISE) website.

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.

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.

School choice via vouchers is often promoted as a means of increasing competition in the school system. Advocates of the voucher system 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. 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 these concerns need to be taken into consideration, the decision on how to finance education should be based on evidence. 

Essentially, there are two types of voucher programs: Targeted or Universal. 

Colombia has a targeted voucher system. The Program for the Expansion of Secondary Education Coverage (PACES) 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 provided researchers with a natural experiment. Findings from the analysis showed that that voucher beneficiaries have higher educational attainment. 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.

Chile, on the other hand has had the universal voucher program since 1980.  Every municipality receives individualized monthly 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. 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 on the system 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.

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 examples demonstrate that vouchers can help countries improve their education systems. But they do so within a context. To understand how they work, if they work, and for whom they work, we need to do a lot more serious research. Fortunately, a lot of this research is underway, by top economists from institutions in donor countries, as well as by national researchers. The Bank is playing its part too - The Strategic Impact Evaluation Fund (SIEF) enables us the opportunity to undertake rigorous research on education programs in several countries, including those programs that involve the private sector.


Harry A. Patrinos

Senior Adviser, Education

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