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Do State‐Funded Property Tax Exemptions Increase Local Government Inefficiency? An Analysis of New York State's STAR Program
Author(s) -
EOM TAE HO,
RUBENSTEIN ROSS
Publication year - 2006
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/j.1540-5850.2006.00839.x
Subject(s) - property tax , subsidy , inefficiency , local government , state (computer science) , public economics , incentive , government (linguistics) , economics , business , state government , law and economics , tax reform , public administration , microeconomics , market economy , political science , linguistics , philosophy , algorithm , computer science
This study tests the effects of a growing form of indirect state aid—state‐supported property tax exemptions—on local government efficiency. We hypothesize that larger exemptions, by lowering the effective tax price paid by local homeowners and thus their incentive to monitor efficiency, will reduce local government efficiency. We test this hypothesis by examining the introduction of New York State's large state‐subsidized property tax exemption program, which began in 1999. We find evidence that, all else constant, the exemptions have reduced efficiency in districts with larger exemptions, but the effects appear to diminish as taxpayers become accustomed to the exemptions.