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Abstract It has been a long-standing challenge to improve the coordination between government and society in better providing public goods. The basic education (elementary and junior middle schools) provision is one typical example. At the end of the last century, to promote the development of private schools to address the shortage of basic public education, the Chinese government gave out several important privileges. For example, private schools could start admissions much earlier than public schools and set specific admission requirements on students, and rejection by private schools did not influence a student’s admission by public schools. Private schools could also admit students across districts without being limited by school zones and charge much higher tuition fees. With these privileges, private schools gained rapid development and a much better reputation for education quality than public schools. That generated new problems: (1) characterized by high tuition fees and high admission requirements on students or even on parents, good private schools could only benefit the rich, which added to education inequality; (2) good private schools could admit the best students and take away the best teachers, which largely harmed the education quality and thus the reputation of public schools.
To address the above problems, the Chinese government issued in June 2019 a policy that removes most of the privileges of private schools. Specifically, the policy requires a student to choose between a public and a private junior middle school in his first round of admission application and requires a private school to admit students within the administrative district where it is registered (hereafter the GMTZ policy). As a result, the GMTZ policy raises the risk for a student to apply for good private school; in the meantime, it raises the chances of students within the administrative districts that have abundant good private schools.
This study focuses on the GMTZ policy in terms of junior middle schools in Hangzhou and investigates how the policy changes the housing price premiums associated with the right to be admitted by the public junior middle school of good education achievements (hereafter, good public school premium) to reveal how the GMTZ policy impacts the scarcity of admission places of good public junior middle schools.
Applying a DiD model and DDD model, we reach four findings based on the records of pre-owned housing. First, we demonstrate that the GMTZ policy significantly adds to the scarcity of admission places of good public junior middle schools and raises the housing price premiums associated with good public junior middle schools by 153.5 thousand yuan. Second, we find that the closer a residential area is to high-quality private junior middle schools, the more substantial the housing price premium is raised by the GMTZ policy. This implies that the GMTZ policy reduces the substitution of a good private school with a good public school. The logic is that before the implementation of the GMTZ policy, good private school is more attractive for students located in an area that is closer to the school because of the convenience of commuting to the school, and private school has stronger substitution to good public schools and thus inhibits the good public school premium; after the GMTZ, the risk of being admitted by the private school is substantially raised, and thus, the substitution effect is largely removed, and the good public school premium is boosted. Third, in the administrative district where admission places of good private junior middle schools are relatively increased by the GMTZ policy, the good public school premiums are less raised. This implies that the GMTZ policy raises the substation of good private schools to good public schools by raising accessibility to good private schools, and thus, good public school premiums are relatively inhibited. The second and third findings demonstrate that the mechanism of how the GMTZ policy adds to the scarcity of admission places of good public junior middle schools is that it reduces the substitution of good private schools with good public schools. Finally, we also find that the GMTZ policy motivates high-income families which prefer high housing quality to shift from quality private schools to chasing quality public schools, and that reveals the behavioral foundation of the substitution mechanism. Robustness tests, including parallel trend tests and different levels of sensitivity tests, are conducted, and consistent results are obtained.
This study makes the following three major contributions. First, it contributes to the literature in studying education-related policies by revealing how a policy changes the substitution effect of private schools for public schools and thus changes the scarcity of public education. Second, this paper is one of the initial studies to investigate education and housing price problems from the perspective of government-society coordination in providing public goods, which has important implications for improving the coordination mechanism between governments and the society in the provision of public goods. Third, it further discusses the micro behavioral fundamentals of how an education policy triggers the sorting of residents.
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Published: 12 December 2023
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