Strategic competition amongst public schools

Education reforms involving expanded school choice are increasingly viewed as a panacea for the US public education system. However, competition is present even absent such reforms through endogenous household residential choice. Utilizing panel data from Illinois from 1990–2000, we assess whether public school districts compete with neighboring public school districts. Specifically, we test for strategic behavior in the choice of educational inputs. The results confirm the strategic behavior of public schools. However, such strategic behavior only occurs during periods of binding financial constraints generated by ‘tax caps’ on aggregate local property tax revenues.