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The Unintended Consequences of Property Tax Relief: New York’s STAR Program

Author

Listed:
  • Tae Ho Eom

    (Department of Public Administration, Yonsei University)

  • William Duncombe

    (Department of Public Administration and International Affairs, Syracuse University)

  • Phuong Nguyen-Hoang

    (Public Policy Center and School of Urban and Regional Planning, University of Iowa)

  • John Yinger

    (Center for Policy Research, Syracuse University)

Abstract

New York’s School Tax Relief Program, STAR, provides state-funded property tax relief for homeowners. Like a matching grant, STAR changes the price of education, thereby altering the incentives of voters and school officials and leading to unintended consequences. Using data for New York State school districts before and after STAR was implemented, we find that STAR increased student performance, school district inefficiency, and school spending by 2 to 4 percent in most districts, leading to an average school property tax rate increase of 14 percent. The STAR-induced tax rate increases offset about one third of the initial STAR tax savings and boosted property taxes for business property. STAR did little to offset the existing inequities in New York State’s education finance system, particularly compared to an equal-cost increase in state aid. This article should be of interest to policy makers involved in property taxes or other aspects of education finance. © 2014 Federal Reserve Bank of New York

Suggested Citation

  • Tae Ho Eom & William Duncombe & Phuong Nguyen-Hoang & John Yinger, 2014. "The Unintended Consequences of Property Tax Relief: New York’s STAR Program," Education Finance and Policy, MIT Press, vol. 9(4), pages 446-480, October.
    • Handle: RePEc:tpr:edfpol:v:9:y:2014:i:4:p:446-480
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    More about this item

    Keywords

    STAR; tax relief; education; state aid; education finances; policy makers;
    All these keywords.

    JEL classification:

    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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