Rational cuts? The local impact of closing undersized schools

The availability of public education services can influence residential choices. Hence, policies aiming to `rationalise' service provision by reducing the number of undersized nodes in the public school network can lead to population decline. This paper examines the demographic and income effects of primary school closures by exploiting an Italian education reform that resulted in a significant contraction of the school network. We assess whether school closures impact households’ residential choices, on top and beyond preexisting negative population trends that motivate school closures. To address endogeneity, we combine a Two-Way Fixed Effects model with an instrumental variable approach, constructing the IVs based on institutional thresholds for school sizing adopted by some Italian regions. Our findings suggest that municipalities affected by school closures experience significant reductions in population and income. The effect is driven by peripheral municipalities located far from economic centres and distant from the next available primary school. This evidence indicates that school `rationalisation policies', by fostering depopulation of peripheral areas, have an influence on the spatial distribution of households and income, thus affecting territorial disparities.