The Consequences of Kelo: a Financial Approach

Municipal bonds corresponding to states that passed effective post-Kelo restrictions on eminent domain takings experienced an increase in yields. The high costs associated with property acquisitions in states with strong legislation deter economic development takings and contribute to the decreasing of municipal bond prices. The financial effect attributed to municipal bonds issued for the purpose of economic improvement completely exceeds the impact offered by industrial improvement and public improvement bonds. The Kelo decision itself reinforced the appropriateness of government takings for private gain. The outcome directly affected municipal bond yields, causing an increase in price because of the low cost involved with property seizures. A sample of 4403 municipal bonds, two legislation classification systems, and bond exposure in 42 of the 50 states ensures robustness in the analysis. The importance of an efficient amount of government intervention is critical to the health of society.