Political Economy of Property Tax Reform: Hawaii’s Experiment with Split Rate Property Taxation

Sally Kwak () and James Mak ()
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Sally Kwak: Department of Economics, University of Hawaii at Manoa
James Mak: Department of Economics, University of Hawaii at Manoa

No 200915, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: Economic theory suggests that switching from a general property tax to a split-rate tax increases land use efficiency and stimulates urban core development while preserving the environment and reducing urban sprawl. Under split-rate property taxation, land is typically taxed at a significantly higher rate than improvements (buildings). Since the mid-1960s, Hawaii lawmakers have experimented with the split-rate system to encourage economic growth and effect land reform. Recently, Kauai County has adopted the unusual practice of taxing improvements at a higher rate than on land. Kauai’s “inverted” split rate property tax provides tax relief to residents who own and occupy modest homes and simultaneously exports taxes to the tourist industry and visitors. This paper chronicles and explains the rationale behind Hawaii state and county experiments with split rate property taxation.

Keywords: Property taxes; split rate property taxation; tourist taxes (search for similar items in EconPapers)
JEL-codes: H (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2009-07

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