7. The scholarship organizations may have differ-
ent definitions of "low-income," and a precise
Notes
breakdown of scholarship recipients by income is
not available. However, the organizations' clear
The authors would like to thank Professor Paul
intent was to provide assistance to those families
Peterson, director of the Program on Education Policy
most in need.
and Governance at Harvard University, and Mary
Gifford, formerly with the Goldwater Institute and
8. We focus our estimate of the fiscal impact of
now director of leadership development at the
the tax credit on 1999 since that is the only year
Mackinac Center for Public Policy, for their assistance.
for which information is complete. Our inter-
views focused on the distribution of the most
1. Quoted in Brian Griesbach, "Board Members
recent scholarships. We do not have an accurate
Give Opinions on Court Tax Credit Ruling,"
estimate of the percentage of scholarship recipi-
Fountain Hills (Arizona) Times, February 3, 1999.
ents in 1998 who would have otherwise attended
public school, so estimating the overall fiscal
2. Increased competition is associated with
impact of the tax credit for 1998 is impossible.
changes in school district behavior and may be
And, since most of the money collected in 2000
linked to improvements in school quality and effi-
will be used to fund scholarships for the 200102
ciency and to student performance as measured on
school year, the revenue effect of the tax credit for
standardized tests. For example, Caroline Hoxby of
2000 will be known only when those scholarships
Harvard University studied the natural variations
are allocated. We know that $17.2 million was
in the level of competition between school districts
raised by scholarship organizations in 2000 as a
in the country. Holding other factors such as
result of the tax credit; however, we will not know
socioeconomic status constant, she found that an
the savings generated by the scholarships until
increase of one standard deviation in the amount
those scholarships are distributed.
of competition in an area is associated with a two
percentage point increase in student math and
9. Arizona Department of Revenue, Office of
reading scores and a 17 percent decrease in per
Economic Research and Analysis, "Arizona's
pupil spending. That evidence suggests that com-
Individual Income Tax Credits for Schools," in
petition makes schools more efficient; in other
Final Report of 1998 Credits, October 2000, p. 1.
words, schools do more with less. Caroline M.
Hoxby, "Analyzing School Choice: Reforms That
10. Arizona Tax Research Association, "Prop. 301
Use America's Traditional Forms of Parental
& Education 2000," ATRA Analysis, n.d., p. 4,
Choice," in Learning from School Choice, ed. Paul E.
www.arizonatax.org.pdf/prop301analysis.pdf.
Peterson and Bryan C. Hassel (Washington:
Brookings Institution, 1998), pp. 14344.
11. Center for Market-Based Education, www.
cmbe.org/extra_info.htm.
3. Jeffry L. Flake, "Tuition Tax Credits: Free at
Last! Free at Last!" Goldwater Institute
12. See Kotternman v. Killian, No. CV-97-0412-SA,
Perspectives on Public Policy no. 97-14, June 12,
http://www.supreme.state.az.us/opin/pdf99/
1997. For more information on how education
cv970412.pdf. See also Center for Market-Based
tax credits can infuse the education system with
Education, www.cmbe.org/extra_info.htm.
market forces, see Andrew J. Coulson, "Toward
Market Education: Are Vouchers or Tax Credits
13. It is important to note that the legal challenge
the Better Path?" Cato Institute Policy Analysis
to the tax credit most likely reduced taxpayer par-
no. 392, February 23, 2001; and Darcy Olsen,
ticipation during 1998, the first year the credit
Carrie Lips, and Dan Lips, "Fiscal Analysis of a
was available. The challenge probably discour-
$500 Federal Education Tax Credit to Help
aged taxpayer participation, as the credit was not
Millions, Save Billions," Cato Institute Policy
yet guaranteed, and it discouraged scholarship
Analysis no. 398, May 1, 2001.
organizations from seeking donations. Although
it is typical for a tax credit program to have
4. We collected information from 20 of the 34
increased use after the first year, the dramatic
scholarship organizations. We conducted phone
increase in participation in Arizona's tuition tax
interviews with 20 organizations, and 10 of those
credit from 1998 to 1999 is likely exaggerated by
organizations also completed the written survey.
the limited use of the provision during the 1998
tax year. The Arizona Department of Revenue
5. The Center for Market-Based Education is part
notes, "Not only was there apprehension on the
of the Goldwater Institute in Phoenix, Arizona.
part of the public as to whether or not this credit
would be upheld, but many tuition organizations
6. The surveys were sent out by the Center for
did not actively solicit contributions because of
Market-Based Education to 303 private schools,
the uncertainty." Arizona Department of
112, or 37 percent, of which responded.
25