Takings Irony

Less tax revenue

Back in 2005, the U.S. Supreme Court notoriously ruled in Kelo v. City of New London that a homeowner must sell her house to the city so it could be handed over for private redevelopment. The city argued that the forced sale would benefit the public because redevelopment would spur economic growth and boost city tax revenues.

A study in the November 2015 Review of Law & Economics finds little evidence to support those claims. Using econometric analyses that focus on the revenue effects from takings made for private redevelopment in the first decade of this century, researchers from the Mercatus Center at George Mason University report that their results "taken as a whole…cast doubt on the argument commonly made for individual eminent domain activities—that they will increase government revenue in the future." In some cases, in fact, takings for private use reduces future tax revenue.

Indeed, the authors suggest, "if more expansive eminent domain powers undermine the security of private property rights, eminent domain for private benefit may cause the tax base to shrink as a result of decreases in private investment."