Quality-Quantity Tradeoffs in Pricing Public Secondary Education

Most governments provide some public education and must choose how to finance it from fiscal transfers and user fees. I study the effects of a shift from mixed funding to pure fiscal transfers in South African secondary schools. Fee elimination increased enrollment in early grades but decreased enrollment in later grades and both pass counts and pass rates on graduation exams. The latter patterns can be explained by crowding that generated reductions in proxies for instructional quality and hence learning outcomes. This demonstrates that price ceilings without supply-side investments may have limited or even negative effects on education outcomes.