Evaluating change in property tax regime on noncommercial food production using a modified positive mathematical programming model

Syed S. Khan, Shawn Arita, Richard Howitt and PingSun Leung
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Shawn Arita: U.S. Department of Agriculture
Richard Howitt: ERA Economics and University of California Davis
PingSun Leung: University of Hawaii at Manoa

SN Business & Economics, 2022, vol. 2, issue 9, 1-20

Abstract: Abstract Since non-commercial users of land may not have the typical goal of profit-maximization as in the case of commercial users—it is important to understand how differently the former type of users may respond to a significant change in policy, such as property tax rules. In the present paper, to demonstrate this divergence, we take the recent case of Maui County’s proposed market-value assessment (MVA)-based property tax, which is expected to increase the tax bills substantially mainly for non-commercial users. We modified and expanded an economic model of land use and food production of Hawaii, developed in 2012—based on a positive mathematical programming (PMP) technique—to simulate the proposed tax policy to determine heterogeneous impacts across different usages. Our simulations suggest that such policy changes will have moderate impacts on commercial food production, but large impacts on its non-commercial counterpart. Although it may be expected that non-commercial producers in operation without profits would contract first in response to an adverse policy, our study confirms that their intangible benefits are inferior relative to the profits that commercial users garner. Non-commercial users, such as hobby farmers are usually thought to have an altruistic motive, which may no longer be sustainable under a rigid property tax regime. Since non-commercial food production accounts for a small amount of total production, the overall effect will be moderate. However, the outcomes offer a better understanding of how aggressive policies may affect different segments of property users differently.

Keywords: Property tax; Real estate; Non-commercial hobby farming; Market-value assessment based tax; Positive mathematical programming model; Hawaii (search for similar items in EconPapers)
JEL-codes: D13 H26 Q12 Q15 Q18 Q24 Q28 R11 R14 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s43546-022-00285-4

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