Helen F. Ladd
Local land use regulations were historically rationalized in terms of externalities. By separating different types of land use, a community could avoid undesirable spillover effects (in the form of factory smoke, for example) of one type of land use on another. However, land use regulations are also used — and perhaps increasingly so — for fiscal purposes, that is, to minimize the impacts of new development on the community's tax rate. Such use is particularly common in suburban communities in metropolitan areas. 1 By zoning out the types of development that would require more in public spending than they would generate in revenue and encouraging development that yields a fiscal 'profit', established residents try to keep their own tax burdens down.
The incentive for fiscal zoning emerges most clearly with the use of property taxes in a spatially fragmented governmental system. Local governments rely heavily on local property taxes to finance public services that are made available on an equal basis to all local residents and, for some services, to all business firms. The primary local service, education, provides direct benefits to households with children and no direct benefits to firms. According to the conventional wisdom, many types of business property generate a fiscal surplus because their property is sufficiently valuable that the property taxes they pay exceed the costs of the services they use. Among residents, households in high valued housing with few children tend to produce a surplus, while those in less expensive housing with many children produce a net fiscal deficit. To maximize their own welfare, established residents try to attract certain types of business firm and to zone out residential uses that produce a deficit. They typically achieve the latter goal by imposing minimum lot sizes or by excluding multi-family housing.
While planners tend to distinguish between land use regulations that limit specific types of land use, such as multi-family housing, and those that limit the overall growth of the community, economists tend to view the latter regulations simply as more stringent forms of traditional land use control. Like zoning, strategies to limit growth are based on the police power of the community and are typically justified as promoting the health, safety and general welfare of local residents by controlling the timing and sequencing of