Abstract: I investigate the effects of voucher-school competition on educational outcomes. I test whether voucher-school competition 1) improves student outcomes and 2) has stronger effects when public schools face a hard budget constraint. Since both voucher school competition and the degree of hardness of the budget constraint for public schools are endogenous to public school quality, I exploit (i) the interaction of the number of Catholic priests in 1950 and the institution of the voucher system in Chile in 1981 as a potentially exogenous determinant of the supply of voucher schools and (ii) a particular feature of the electoral system that affects the identity of the mayors of different counties (who manage public schools) as a source of exogenous variation in the degree of hardness of the public schools budget constraints. Using this information, I fnd that: 1) an increase of one standard deviation of the ratio of voucher-to-public schools increases tests scores by just around 0.10 standard deviations; and 2) the effects are significantly bigger for public schools facing more binding minimum enrollment levels.