Working Paper: CEPR ID: DP16371
Authors: Fernando Borraz; Felipe Carozzi; Nicolas Gonzalez Pampillon; Leandro Zipitria
Abstract: We study how differences in retail prices within a city are affected by changes in local housing markets. Our empirical strategy is based on an exogenous shift in the spatial distribution of construction activity induced by a large-scale, place-based tax exemption in the city of Montevideo. We provide differences-in-differences and instrumental variable estimates showing that the price of retail goods decreases in areas within the city that experience more residential development. We use a multi-product model of imperfect competition to relate this change to an expansion in either product varieties or firm entry. We report evidence in support of the varieties channel, with new development causing an increase in varieties available locally. Our results have implications for urban planning policy and the broader discussion about winners and losers from neighborhood change.
Keywords: retail prices; housing supply; neighborhood change
JEL Codes: R23; R30; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| new residential stock induced by tax exemption policy (R38) | decrease in grocery prices (Q11) |
| new residential stock induced by tax exemption policy (R38) | increase in product varieties available in supermarkets (F61) |
| increase in housing supply (R31) | increase in purchasing power for local households (D19) |
| new residential stock induced by tax exemption policy (R38) | initial increase in grocery store entry (L81) |
| initial increase in grocery store entry (L81) | price reductions (L42) |
| initial increase in grocery store entry (L81) | sustained increases in store availability (L81) |