Growth Under the Shadow of Expropriation? The Economic Impacts of Eminent Domain

Is it justified for governments to expropriate private property rights? We embed competing views in a model: insecure property rights leading to underinvestment, moral hazard leading to overinvestment, or public use leading to economic growth. To isolate the mechanisms, we use the random assignment of U.S. federal court judges setting geographically local precedent. For over a half-century, racial minority Democrats were more likely to strike down government takings while Republican former federal prosecutors were more likely to uphold government takings. Over time, making physical takings easier stimulated subsequent takings, expropriation of larger parcels, highway construction, and growth in construction, transportation, and government sectors. Overall economic growth and property values increased. However, minorities were increasingly displaced and unemployed, and the service sector declined. Facilitating government regulations of land use also spurred economic growth and increased property values but did not lead to displacement or racial inequality.