How can law best mitigate harm from crises like storms, epidemics, and financial meltdowns? This Article uses the law and economics framework of property rules and liability rules to analyze crisis responses across multiple areas of law, focusing particularly on the ways the Internal Revenue Service (IRS) battled the 2008–09 financial crisis.
Remarkably, the IRS’s responses to that crisis cost more than Congress’s higher-profile bank bailouts. Despite their costs, many of the IRS’s responses were underinclusive, causing preventable layoffs and foreclosures. This Article explains these failures and demonstrates that the optimal response to crises is to shift from harsh property rules to compensatory liability rules, temporarily. Arranging such a shift in advance further mitigates harm when crises arrive.
This analysis also provides new insights for the broader literature on property rules and liability rules. For example, arranging in advance for temporary moves to liability rules during crises can avoid windfalls, allow speedier relief, and encourage flexible private contracts. These lessons have practical applications in areas as far afield as how constitutional law and patent law respond to epidemics.
Crises and Tax,
67 Duke Law Journal
Available at: https://scholarship.law.duke.edu/dlj/vol67/iss6/1