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


  • The authors gratefully acknowledge the assistance of Lowell Kalapa (President, Tax Foundation of Hawaii) for sharing with them his wealth of knowledge about the history of split-rate taxation in Hawaii. They also thank Sumner LaCroix, Andrew Kato, and an anonymous referee for valuable comments. Robert Magota of Honolulu County's real property assessment office was extremely helpful in providing information on assessment practices and county ordinances related to property tax assessments in Hawaii. Kwak's work on this article was supported by the Lincoln Institute of Land Policy.


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. Beginning in 1965 Hawaii experimented with a statewide split-rate property tax system to encourage economic growth and effect land reform. The experiment was ended in 1977. Following the transfer of property taxing powers to the counties in 1978, some counties brought back the split-rate property tax at times. Since 2006, Kauai County has adopted the unusual practice of taxing improvements at a higher rate than land for most property classes. This article chronicles and explains the rationale behind Hawaii's state and county experiments with split-rate property taxation.