The Effects of the Tax Deduction for Postsecondary Tuition: Implications for Structuring Tax-Based Aid

Caroline Hoxby and George Bulman ()

No 15114, Economics Working Papers from Hoover Institution, Stanford University

Abstract: The federal tax deduction for tuition potentially increases investments in postsecondary education at minimal administrative cost. We assess whether it actually does this using regression discontinuity methods on the income cutoffs that govern eligibility for the deduction. Although many eligible households take nearly the maximum deduction allowed, we find no evidence that it affects attending college (at all), attending full- versus part-time, attending four- versus two-year college, the resources experienced in college, the amount paid for college, or student loans. Our analysis suggests that the deduction's inefficacy may be due to issues of salience, timing, and the method of receipt. We argue that the deduction might increase college-going if it were modified in simple ways that would not increase costs but would make it more likely to relax liquidity constraints and be perceived as a price change (which they is) as opposed to an income change. We outline how such modifications could be tested. This study has independent applied econometrics interest because households who would be just above a cut-off manage their incomes so that they fall slightly below it. This income management generates bias due to reverse causality, and we explore how to choose "doughnut-holes" that avoid bias without undue loss of statistical power.

JEL-codes: C21 C55 H2 H24 H26 I22 I23 I26 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2015-09
New Economics Papers: this item is included in nep-edu and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.hoover.org/sites/default/files/research ... ng_tax-based_aid.pdf

Related works:
Journal Article: The effects of the tax deduction for postsecondary tuition: Implications for structuring tax-based aid (2016)
Working Paper: The Effects of the Tax Deduction for Postsecondary Tuition: Implications for Structuring Tax-Based Aid (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hoo:wpaper:15114

Access Statistics for this paper

More papers in Economics Working Papers from Hoover Institution, Stanford University Contact information at EDIRC.
Bibliographic data for series maintained by Webmaster ().