The Effects of Homestead Exemptions for Seniors and Disabled People on School Districts

Oct 15, 2026

Uploaded by McQueen

The article studies how homestead exemptions targeted to seniors and people with disabilities affect rural school district finances and student outcomes. Using Kentucky as a focused case, it applies a two-stage generalized method of moments to estimate demand for local education spending, then simulates spending without the exemption. A panel for 1999–2013 combines Census, National Center for Education Statistics, and detailed state exemption and academic performance data. Results show tax relief without widening resource or academic achievement gaps, attributed to Kentucky’s strong school finance equalization.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages13

Reading Time33 min

AccessFree to download

Introduction

Data and Methodology

Estimation of spending demand

Simulation without the exemption

Results and Implications

AERA Open January-December 2021, Vol. 7, No. 1, pp. 1–13 DOI: 10. 1177/2332858420988712 Article reuse guidelines: [sagepub.com/journals-permissions](sagepub.com/journals-permissions)[ ](sagepub.com/journals-permissions)© The Author(s) 2021. [http://journals.sagepub.com/home/ero](http://journals.sagepub.com/home/ero) The Effects of Homestead Exemptions for Seniors and Disabled People on School Districts Alex E. Combs University of Georgia John M. Foster Southern Illinois University Edwardsville Homestead exemptions for senior and disabled homeowners disproportionally erode rural tax bases but may still stimulate local educational spending. This article examines one such exemption in Kentucky. Two-stage generalized method of moments is used to estimate the demand for local education spending, then spending in the absence of the exemption is simulated to estimate effects on school district expenditure and academic performance. We combine Census and National Center of Education Statistics data with detailed exemption and academic performance data from Kentucky’s Departments of Revenue and Education into a panel spanning 1999–2013. Results suggest the exemption provides relatively generous tax relief without increasing resource and academic achievement gaps between rural and nonrural districts. This is largely attributable to Kentucky’s strong school finance equalization effort. Our findings can help states with a similarly targeted exemption consider such impacts in relation to their own demography and funding systems. Keywords: rural education, property tax exemptions, demand for local education spending, school expenditure, academic performance Approximately 20 states offer homestead exemptions to seniors and/or those with a disability without reimbursing local governments for lost revenue (Duncombe & Yinger, 2001; Lincoln Institute of Land Policy and George Washington Institute of Public Policy, 2019) . Among them, disability and senior household rates are five and seven percentage points greater in rural counties, respectively (U.S. Census Bureau, 2017a, 2017b) . Such differences suggest homestead exemptions that target seniors or disabled people may disproportionately erode tax bases in rural school districts, leading to disparities in educational resources and student achievement. However, most studies find that educational spending rises in response to property tax exemptions due to a corresponding decline in the median voter’s share of the cost (Addonizio, 1991; Brien & Sjoquist, 2014; Eom et al., 2014; Fisher & Rasche, 1984; Rockoff, 2010) . Variation in exemption features and school equalization effort warrants additional research in order to understand the extent to which such exemptions impact rural education finance. This article examines the effects of a homestead exemption for seniors and disabled people on school district expenditure and academic performance in Kentucky. Kentucky offers valuable context to this line of inquiry in several respects beyond its targeted exemption. Almost all states have multiple exemption programs with overlapping eligibility and different levels of relief. Kentucky is one of only two states with a single exemption program, allowing us to examine its impact in isolation. Moreover, the exemption does not include local options that cause relief to vary by county, it is not means tested, and relief is capped at a flat dollar amount. Relative to states with similarly targeted exemptions, Kentucky’s disparity in senior and disability rates between rural and nonrural counties is about average, but its exemption is among the most generous in terms of the percent of property tax revenue lost. Last, Kentucky outranks most states with regard to its school finance equalization effort (Hightower et al., 2010; U.S. Government Accountability Office, 1998) . Since state aid is inversely related to taxable property wealth, we examine the efficacy of Kentucky’s equalization ef

FAQs

What problem does the study address about homestead exemptions?

Homestead exemptions targeted to seniors and people with disabilities can erode rural tax bases, which may affect school resources and student achievement. The article examines whether these exemptions also change education spending and academic outcomes.

How does the study estimate the effects in Kentucky?

It estimates the demand for local education spending with a two-stage generalized method of moments, then simulates education spending in the absence of the exemption. The analysis uses a panel spanning 1999–2013 with Census, NCES, and Kentucky administrative data.

What do the findings suggest about equity and academic performance?

The exemption provides relatively generous tax relief without increasing resource and academic achievement gaps between rural and nonrural districts. The results are largely attributed to Kentucky’s school finance equalization effort.

Oct 15, 2026

Uploaded by McQueen