Critics of emergency measures such as the U.S. government’s response to 9/11 invoke the Carolene Products framework, which directs courts to apply strict scrutiny to laws and executive actions that target political or ethnic minorities. The critics suggest that such laws and actions are usually the product of democratic failure, and are especially likely to be so during emergencies. However, the application of the Carolene Productsframework to emergencies is questionable. Democratic failure is no more likely during emergencies than during normal times, and courts are in a worse position to correct democratic failures during emergencies than during normal times. The related arguments that during emergencies courts should protect aliens, and should be more skeptical of unilateral executive actions than of actions that are authorized by statutes, are also of doubtful validity.
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Intergovernmental Liability Rules
This Article offers an innovative approach to settling disputes about interjurisdictional externalities. Focusing attention on the negative spillover effects of local government zoning decisions on neighboring jurisdictions, the Article develops a monetary compensation regime intended to enrich the currently limited spectrum of intergovernmental legal remedies. This new liability rule scheme is intended to promote regional efficiency in land use decisions, without wholly upsetting local government powers. To achieve this aim in a way that is both normatively desirable and administratively feasible, the Article suggests that the parties to the litigation would be the respective local governments, and the remediable damages — the time-fixed loss of public revenues resulting from the expected cross-border adverse effects of the new land use. Hence, for example, a local government would be entitled to compensation for a decrease in its property tax revenues following the devaluation of properties in its territory due to the expected environmental spillovers of a newly approved land use across the border.
As this Article shows, the focus on public revenues may often serve as an effective proxy for evaluating the entire set of public and private marginal effects of the land use decision, making the proposed legal regime a reliable mechanism to promote overall social welfare without resorting to a costly full-scale litigation involving private parties. In addition, the liability rule framework reveals the potential for a monetary internalization of cross-border positive spillovers, and offers a fresh basis for addressing a wide array of intergovernmental conflicts and dilemmas beyond the land use context.
Risk and Redistribution in Open and Closed Economies
The relation between taxation and risk-taking has occupied an important place in tax scholarship in recent years. To date the focus has been on the domestic, or closed economy, setting. This Article expands existing analysis to the open economy setting, with specific emphasis on the distributional consequences of the taxation of risky cross-border investments. The Article describes a phenomenon, labeled “divergence,” under which common international tax instruments result in the systematic splitting of upside and downside risk across jurisdictions. Divergence can, in turn, be split into “public divergence” and “private divergence,” depending upon whether the excess downside risk is borne by the fisc or by the taxpayer. The rate of divergence is a function of source jurisdiction tax policy, but the split between public and private divergence is a function of residence jurisdiction method of double tax relief. Divergence is both quantitatively substantial (approximately $10.6 billion for a sample year with respect to U.S. outbound investment) and normatively problematic from the standpoint of political legitimacy. The political economy of divergence, however, suggests that it is likely to continue as a pervasive feature of cross-border taxation. The Article accordingly concludes with a discussion of how divergence should shape policy-making in the following important areas: domestic loss offsets, tax subsidies, transfer pricing, double tax relief, and foreign aid.