Eminent Domain for Private Uses Lacks Economic Benefits

Published December 24, 2014

In an era of increasing government economic intervention and regulations, people have many reasons to be concerned about future government growth. After sweeping changes in health care and immigration policy and to public education, policy changes are adding to people’s uncertainty about the health of the U.S. economy. A fundamental element critical to the economy’s success, private property rights, has been under continual government pressure in recent years.

In 2005 the Supreme Court of the United States case Kelo v. City of New London determined governments could take private property for “private benefit,” in addition to “public use” as originally set forth in the Fifth Amendment to the U.S. Constitution.

People were outraged at this controversial Supreme Court decision. In the wake of the Kelo ruling, many state governments amended their constitutions to better secure property rights. 

Cutting Standard of Living

Almost ten years have passed since this landmark court case. Although the uproar surrounding Kelo has subsided, the issue remains. The use of eminent domain for private benefit is an egregious abuse of private property rights.

Given the importance of property rights for economic growth, the long-run consequences of this decision will likely reduce our standard of living. 

In a recent working paper for the Mercatus Center at George Mason University, we examined the relationship between eminent domain activity and state and local revenue.

Essentially, the Kelo decision allowed governments to use eminent domain to transfer property from one private entity to another. Eminent domain supporters say these actions can generate a public benefit by expanding the economy, thereby increasing government revenue

We investigated this claim and found virtually no evidence of a positive relationship between tax revenue and the number of eminent domain takings for private use. In fact, we found some evidence of a negative relationship between eminent domain and future revenue growth.

We also empirically investigated the consequences of takings for private benefit, by examining the effects on subsequent revenue and growth. We used data from previous studies recording the number of total condemnations, sorted by state, as a proxy for the number of properties taken through eminent domain to benefit private parties.

We measured tax revenue as a percentage of personal income. Tax revenue ratios were calculated using local government revenue figures, state government revenue figures, and combined local and state government revenues. 

The lack of any statistically significant correlation between eminent domain activity and revenue levels supports the idea there is no relationship between takings and the government revenues.

Fundamentals of Success

These findings have important public policy implications.

Any interventions undermining the security of private property rights can adversely affect economic growth and development. In other words, our standard of living goes down as property rights become less secure. Private property rights are the foundation of a successful market economy and the basis on which all voluntary and mutually beneficial trade occurs.

The land and property of Susette Kelo and her neighbors was taken as part of a redevelopment plan that included research, office, and retail space to accompany a new facility for the pharmaceutical company Pfizer. This redevelopment did not come to fruition, and the land was actually used as a temporary dump for storm debris in the aftermath of Hurricane Irene in 2011.

This hardly qualifies as a public good, and it did not increase government revenues and expand the economy.

Voters should be more skeptical when politicians claim using eminent domain for private purposes can benefit the economy. Politicians, for their part, should pay more attention to the importance of protecting private property rights, instead of approving plans to take land from some residents—who are typically poor and lacking political influence—and handing it over to their political supporters.

Carrie Kerekes ([email protected]) and Dean Stansel ([email protected]) are associate professors of economics at Florida Gulf State University.

Internet Info:

“Takings and Tax Revenue: Fiscal Impacts of Eminent Domain,” Carrie Kerekes and Dean Stansel, http://www.heartland.org/policy-documents/takings-and-tax-revenue-fiscal-impacts-eminent-domain/