Paper short abstract:

This paper evaluates the effect of a key social policy innovation: education vouchers. It analyses its effects on quality and social segregation. It shows that the effects are negative and that the neoclassical assumptions of the quasi-market model do not hold in reality.

Paper long abstract:

In the context of a new global wave of privatisation of social services, the increasing role of private education around the world constitutes a critical source of inequality and social stratification. This article analyses the political economy of vouchers in Chile, as a social policy ´innovation´ which is being followed by a number of countries in Latin America, Asia and Africa. This case study is important since it constitutes one of the oldest and most extensive voucher systems in the world and thus represents a valuable experience from which numerous general lessons may be drawn. For this purpose, this paper examines a key pillar of education markets, i.e. the role of competition between schools as a driver for education quality improvement. Using a large dataset of students and schools in Chile, it empirically estimates the effect of competition over academic outcomes, showing that its effects are negative. In other words, this policy innovation fails to rise education outcomes, but at the same time it increases education inequality and social segregation among students from different social classes. The paper then offers an explanation of these findings, analysing each one of the main underlying neoclassical assumptions of the voucher model in education, demonstrating through empirical evidence why they do not work in reality. Finally, it discusses the main policy implications.