Charter school proliferation and school district fiscal stress, a chicken-egg problem

Charter schools have become one of the most popular school choice programs in recent years. While being accused of endangering the fiscal health of local school districts, charter school proliferation could also be the result of fiscal stress of local school districts. However, this reverse causation has not been fully studied in the literature. Using data of local school districts in Ohio from 2011 to 2019, I adopt an Instrumental Variable approach to investigate the possible scenario that the rapid growth in charter school enrollment could be caused by fiscal stress of school districts. The results suggest that the inadequate funding from state and local sources had led to a significant increase in charter school enrollment for urban districts, although the charter demand is inelastic to public funding changes. Students could be left with no better options but to choose charter schools over failing traditional public schools.