Responses of Private and Public Schools to Voucher Funding:The Czech and Hungarian Experience

A state monopoly in schooling followed the collapse of communism in Central Europe. The centrally planned system was abandoned. Systems comparable with educational voucher scheme, also known as school choice system, were introduced in the Czech Republic and Hungary in the early 1990s. The newly established system of school financing allocates public funds according to the number of students enrolled in a school. Accredited non-state schools, private and religious, are also eligible for public subsidies. The scope and the form of these reforms represent a unique opportunity to test conflicting hypotheses of proponents and opponents of the voucher scheme. In this empirical analysis, we test fundamental theoretical predictions of the voucher model. Specifically, we test: i) whether non-state schools are established at locations where the supply of educational opportunities provided by state schools is low or of low quality, ii) whether state and non-state schools in such a system respond to changes in demand for education, and iii) whether state schools respond to competition from non-state schools. We use detailed school level data on the whole population of schools and data on regional conditions. In our econometric model we estimate education value added, instead of relying on absolute quality of school graduates. We find that non-state school emerge at locations with excess demand and lower quality state schools. We also find that greater competition from non-state schools creates incentives for state schools with the result that state schools slightly improve the quality of educational inputs used and significantly improve their output, quality of graduates. As concerns the technical schools, we find that non-state schools react to regional labor market conditions in terms of technical branch premium and unemployment rate. We do not find such reactions to market signals by state schools. We introduce this analysis with a review of non-state schools' development in the Czech Republic and Hungary during the 1990s.