The Political Economy of Eminent Domain : The Economic and Political Effects of Housing Demolition in China

We ask whether eminent domain can deliver net benefits to households and how affected citizens politically interact with the government. Our context is house seizure and demolition in urban China during 2010-2018, a period in which market value-based compensation is offered for seized houses. Exploiting variation in the timing of house seizure and demolition across households using large-scale panel data, we find that having one household’s housing seized or demolished increases households’ housing wealth by 14% and total consumption by 20%. It also reduces the labor supply of affected household members and improves their psychological well-being. We find no evidence of house seizure and demolition producing adverse political effects. Instead, housing demolition increases affected citizens’ trust in local officials and subjective evaluation of local government performance in less corrupt cities. Our findings highlight the importance of fair compensation and sound governance for implementing eminent domain programs in developing countries