Issue 5

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.

Specialize the Judge, Not the Court: A Lesson from the German Constitutional Court

The federal courts of appeals are in the midst of a crisis. The exploding volume of cases in those courts and the increasing complexity of the law present a real threat to the quality of appellate justice. Borrowing Adam Smith’s basic insight about the division of labor, many commentators have argued that the federal appellate courts might manage this crisis through greater specialization. The particular mode of specialization that has come into favor is the establishment of appellate courts with limited and exclusive jurisdiction over a set of subject matters. An example of such a court is the Court of Appeals for the Federal Circuit, and the apparent success of this court in the rationalization and harmonization of patent law has engendered proposals for many other specialized courts of appeals.

However, there are a host of problems with relying on such “specialized courts,” including judicial “tunnel vision,” the lack of cross-pollination of legal ideas, judicial capture by special interests, and excessive judicial policymaking. Commentators often defend their proposals for more specialized courts by pointing to the success that some European countries have had with highly specialized appellate judiciaries. But the apparent success of the European experience with specialized courts may be peculiar to the civil law philosophy of judging; borrowing a distinctly civil law solution for the American common law landscape may not be successful.

This Note proposes a different mode of specialization: staffing cases with a mix of expert and non-expert judges. The German Constitutional Court has used a similar system for many years. Since this solution is being borrowed from a constitutional court, which is far more like an American court than a civil law court, problems of translation are reduced. The proposal balances our desire for generalist judges with the need for judicial expertise as law grows increasingly complex. It helps solve the problem of exploding caseloads by allowing the federal appellate courts to take on more judges without sacrificing intra-circuit coherence of federal law. It achieves the goal of expertise by leveraging the differing abilities and interests of appeals court judges. While doing all this, the proposal also avoids many of the problems with the use of specialized courts of limited, exclusive jurisdiction.

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