The Cost of Kelo: Are Property Taxes a Form of Public Use?

This paper examines the economic implications of the definition of public use advanced by the Supreme Court in the case of Kelo v. New London. In its ruling, the Court asserted that the Fifth Amendment public use requirement is satisfied if the taking in question, even if for private ends, promises enhanced jobs and tax revenues for the community. The paper first reviews the law and economics of public use, and then argues that the Court’s justification creates the potential for an alliance between local governments and developers that will increase the risk of overuse of eminent domain. Underlying this risk is the unobservability of landowners’ subjective values, which requires local governments to rely on market value as the basis for property taxation.