Government Expropriation Increases Economic Growth and Racial Inequality: Evidence from Eminent Domain

Abstract

Is it justified for states to appropriate private property rights? If so, should governments expropriate or regulate?We test three conventional views: insecure property rights cause underinvestment, moral hazard cause overinvestment, or public use cause economic growth.We embed these mechanisms in a model and measure them using the random assignment of U.S. federal court judges setting geographicallylocal precedent. For a half-century, racial minority Democrats were more likely to strike down government appropriations while Republican former federal prosecutors were more likely to uphold them. We find that pro-government physical takings precedent stimulated subsequent takings, expropriation of larger parcels, highway construction, and growth in construction, transportation, and government sectors as well as agriculture, retail, and financial sectors, overall economic growth, and property values. However, racial minorities were increasingly displaced, unemployed, and living in public housing, and the service sector declined. Pro-government regulatory takings precedent also spurred economic growth and property values, but did not increase displacement or racial inequality.

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Reference

Daniel L. Chen, and Susan Yeh, “Government Expropriation Increases Economic Growth and Racial Inequality: Evidence from Eminent Domain”, TSE Working Paper, n. 16-693, September 2016.