The Fiscal Illusion Zombie: The Undead Theory of Government Regulatory Incentives

This is a Response to Bethany R. Berger's recent Article, The Illusion of Fiscal Illusion in Regulatory Takings. In that Article, Professor Berger argues against the view that governments should be forced to compensate for regulatory burdens because they suffer from fiscal illusion and will only internalize the costs that they, in fact, have to pay. She demonstrates that property taxes already provide a mechanism through which governments internalize both the costs and benefits of their property regulations, and that compensation for regulatory takings is therefore unnecessary and even perverse for creating efficient regulatory incentives. This Response argues that she is correct and that her criticism joins many others before it.

However, despite these significant criticisms, fiscal illusion continues to inform takings theory. This Response ultimately demonstrates that even if Professor Berger is correct, her proposed responses do not entirely address the problem that compensation will over-deter government regulations, and so this Response proposes both municipal insurance and liability for regulatory inaction as potential interventions.