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Auriol, Emmanuelle

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 11, Issue 1


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Why Don't Taxpayers Maximize their Tax-Based Student Aid? Salience and Inertia in Program Selection

Nicholas Turner
Published Online: 2011-12-22 | DOI: https://doi.org/10.2202/1935-1682.2896


Tax-based federal student aid is designed to increase postsecondary attendance and ease the financial burden of higher education enrollment by offering students and their families a menu of tax incentives. However, many taxpayers who are eligible for more than one tax-based aid program, and who are limited to one program per student each year, fail to select the single program that offers the largest reduction in taxes. Analyzing a panel dataset of individual income tax returns, I find that in roughly one out of four returns taxpayers and paid preparers fail to select the tax-minimizing tax-based aid program. I find evidence that greater salience of federal tax effects, and inertia in program selection, leads some taxpayers and paid preparers to make non-tax-minimizing selections. Streamlining the set of tax-based aid programs into a single tax incentive is likely to be a more effective way of lowering the costs of postsecondary attendance for students and their families.

Keywords: salience; inertia; default behavior; tax-based student aid

About the article

Published Online: 2011-12-22

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 11, Issue 1, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.2896.

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