Working Paper: CEPR ID: DP18072
Authors: Elisa Giannone; Nuno Paixo; Xinle Pang; Qi Li
Abstract: We argue that the interaction between mobility and wealth provides an alternative view that rationalizes the low geographic migration rates even with substantially lower migration costs than currently thought. We reach this conclusion by developing and solving a quantitative dynamic spatial equilibrium model with endogenous wealth accumulated through liquid and illiquid assets. We estimate a yearly moving cost between Canadian cities of 196,303 CAD, substantially lower than previous estimates. To demonstrate the model’s validity, we study policies advocated to reduce disparities: Do moving vouchers or housing affordability policies enhance welfare, especially for the poor? Our findings suggest that moving vouchers only marginally increase the welfare of eligible households, and those who receive the vouchers tend to move to locations with lower house prices and wages. In contrast, our model shows that lower housing regulations in Vancouver can decrease the welfare gap between rich and poor by lowering house prices nationwide through spatial reallocation. Thus, the insurance value of living in high-income cities becomes higher, reducing the incentive for low-wealth families to move precautionarily to low housing costs locations.
Keywords: dynamic spatial models; wealth; migration costs; housing policies; moving vouchers
JEL Codes: G51; R12; R13; R2; R31; R52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mobility + wealth (J62) | low migration rates (J61) |
| wealth accumulation (E21) | migration decisions (F22) |
| moving vouchers (J62) | marginal increases in welfare (D69) |
| reducing housing regulations (R38) | decrease welfare gap between rich and poor (I24) |
| lower moving costs (R21) | reduce necessity for moving (R21) |