Loopholes and the Incidence of Public Services: Evidence From Funding Career and Technical Education

ABSTRACT In 2015, Michigan increased its Career and Technical Education (CTE) funding and changed its funding formula to reimburse programs based on student progression through program curricula. Although this change nearly doubled program completion rates, student enrollment and persistence were unaffected; instead, administrators accelerated student progress by reorganizing course curricula around notches in the new funding formula. As a result of response heterogeneity, 30% of the funding increase was transferred away from high‐poverty districts to more affluent ones, underscoring how supply‐side responses to loopholes shape the incidence of public services.