Working Paper: NBER ID: w31402
Authors: Joao Guerreiro; Sergio Rebelo; Pedro Teles
Abstract: Global cities are attracting an increasing number of tourists and foreign residents. 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 agglomeration, congestion, and other potential externalities. Importantly, it is not optimal to restrict, tax, or subsidize home purchases by foreign residents.
Keywords: remote work; foreign residents; housing markets; global cities; policy implications
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) | increase in rental prices (R21) |
| influx of foreign residents (F22) | production congestion (L91) |
| production congestion (L91) | displacement of locals from high-productivity areas (R23) |
| optimal policy involves transfers to internalize agglomeration and congestion externalities (R38) | address negative externalities (D62) |