Taxing Development

This paper focuses on traffic impact fees and illustrates a series of difficulties with their use. Contemporary U.S. law suggests that fees be based on a rational nexus of costs and benefits and on rough proportionality of a fee with the external cost imposed by new development. But how are these external costs measured? Can government know the marginal impacts of all homes before they are built? Do all developments have the same marginal impact on infrastructure, and, if not, should they all be charged different fees? Unless government knows the exact marginal impact of each development, they will undercharge some and overcharge others, making “economically efficient” development impossible. In the absence of markets with actual prices for these common pool resources, government will face numerous calculation problems.

Find this paper online at The Independent Institute.