Limit comparison-shopping? : The effect of new establishments of independent upper-secondary schools on public school costs

In the 1990s, an educational reform changed the Swedish school market. The reform allows anyone with permission from the Swedish Schools Inspectorate to establish an independent school. The main objective of this paper is to examine how new establishments of independent upper-secondary schools affect the public school’s costs per student during the time period 2005 to 2014. Using application data, we can separate municipalities in which independent schools have been established and where they have not. This data allows us to estimate a Difference in Difference model where the treatment is a new establishment. The results reveal three key findings: first, on average, municipalities experience a cost decrease if new independent schools are established. Second, a common trend exists in the pre-period between the two types of municipalities. Third, decomposing the total public school cost per student, the establishment of new upper-secondary schools reduces teaching, equipment and healthcare costs. Further research should examine the political objectives on the municipality level for new establishments. In the future it may be important, from a policy perspective, that if municipalities are given a veto right in the establishment process, market competition will be determined based on political preferences