Federalism and Fintech

Last week, Mercatus scholar Brian Knight released a policy spotlight that focuses on the complex interactions between financial innovation and state policy. Financial technology—“fintech”—has the potential to revolutionize markets by improving access to credit, often with low risk and low cost. Unfortunately, fintech firms are forced to navigate a murky world of state licensure and regulations that their competitors are often exempt from.

That’s because unlike banks, fintech firms are not granted national charters or subject to relatively uniform rules that were imposed through federal preemption. As Mr. Knight notes, that translates to higher costs for consumers, an uneven playing field that needlessly favors traditional banks, or the concentration of political power in the hands of a small number of highly influential states (like New York).

Mr. Knight concludes that this federal problem may require a federal solution. While he points to the positive impact state-level changes could have, he also notes that Congress has a special ability to address the imbalances of fintech federalism.

To read the policy spotlight, click here. 

Does Land Development Pay for Itself?

Tom Means and Jack Estill, professors at San Jose State University, authored a study last week that analyzes Cost-of-Community-Service Studies (COCS). These studies attempt to calculate the public expenditures (police, schools, etc.) that a new development would require, as well as what public revenue it would generate. Local governments will often base their land use decisions based on COCS estimates.

Means and Estill point to several factors that bias COCS against residential development and in favor of retail. These studies often assume that homes will require significant public investment, while shops will bring in tax revenue. But the COCS does not account for market responses to land use decisions, which might increase the value of the residence and boost property taxes. They also fail to account for retailer’s need for nearby consumers, and for the diminishing costs per-unit associated with providing public goods.

To read the working paper, click here.