Working Paper: CEPR ID: DP18287
Authors: Joo Guerreiro; Sergio Rebelo; Pedro Teles
Abstract: Global cities are attracting an increasing number of tourists and foreign res- idents. This surge generates capital gains for property owners but negatively impacts renters and creates potentially important production, congestion, and amenities externalities. We study the optimal policy toward local and foreign residents in a model with key features emphasized in policy debates. Using this model, we provide sufficient statistics to calculate the optimal tax/transfer policies. These policies involve implementing transfers to internalize agglomer- ation, congestion, and other potential externalities. Importantly, it is not optimal to restrict, tax, or subsidize home purchases by foreign residents.
Keywords: remote work; real estate; taxes; city design
JEL Codes: H00; J61; R3; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| influx of foreign residents (F22) | capital gains for property owners (H13) |
| influx of foreign residents (F22) | negative impact on renters (R21) |
| influx of foreign residents (F22) | production congestion (L91) |
| production congestion (L91) | negative impact on local amenities (R53) |
| influx of foreign residents (F22) | negative impact on local welfare (I30) |
| optimal policy (C61) | transfers to internalize agglomeration congestion and other externalities (R32) |
| restricting or subsidizing home purchases by foreign residents (R38) | not optimal (H21) |