Working Paper

Abstract

New York State’s School Tax Relief Program, STAR, provides state-funded exemptions from school property taxes. From 2006-07 to 2008-09, these exemptions were supplemented with rebates, which arrived as a check in the mail. The purpose of this paper is to determine whether these two algebraically equivalent but administratively distinct policies of tax relief led to different behavioral responses. Drawing on behavioral economics, the authors explore the impact of STAR on the price elasticity of demand for school quality based on the concepts of salience and framing. Their main results are that the behavioral impact of the STAR provisions are larger (1) when they are most salient and (2) when they are framed as a property tax reduction instead of as unlabeled income. The authors also show that salience and framing can help to explain flypaper effects linked to state educational aid and to the resources that are freed up by a decline in the price of education.