The termination of publicly funded private school contracts: Supply and demand side effects

We evaluate the demand and supply side effects of a policy which cuts funding to a significant portion of publicly funded private classes in Portugal, Contratos de Associação (AC), in which students do not pay tuition fees and are under the same admission criteria as in Public Schools–i.e., these private schools cannot select students based on their socioeconomic status or prior achievement. This policy established that from 2016/17, Private school classes would no longer receive Contratos de Associação funding if the government deemed that there were enough nearby Public Schools with capacity to absorb the new student cohorts. Compared to the pre-reform student cohort, we find that affected students changed the demand patterns for different types of schools: both the number of Public school classes and regular Full-Fee Private School classes increased, but the rise in the former was larger in absolute terms. Nevertheless, this pattern of movements was heterogenous across different sub-groups of the student population. While non-low-income students switched both to Public and Private school classes, we verify practically a one-to-one movement of the low-income student cohort from AC schools to Public schools only. On the supply-side, we find that the decrease in AC schools was not fully compensated by the increase of schools that are now under different Private School systems and that some of these schools later shut down.