Differential impacts of use value taxation on local property tax bases over time

Abstract

A method for measuring the relative impacts of an agricultural use value tax program on local tax bases is developed and applied to the case of Hawaii. A simulation model is used to reconstruct local tax bases without the program. The model design takes into account the cumulative growth effects of foregone tax bases over time. The rationale for proper accounting of these foregone growth effects is strengthened by the tendency of tax capitalization effects to lessen the impacts and ultimate transfer effects. The relative impacts of the program on SMSA and rural tax bases are measured by comparing effective tax rates with vs. without the program. The relative impacts have been minor over the first decade of the programless than 0.10% for the SMSA and up to about 1.3% for the rural counties. For the future, even with a recently expanded program, the ultimate transfer effects will tend to be moderated by economic growth and capitalization effects. This moderating tendency is stronger for the SMSA, where there may be greater justification for use value taxation, than for rural counties.