Housing Supply Elasticity and Rent Extraction by State and Local Governments
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Abstract
Governments may extract rent from private citizens by inflating taxes and spending on projects benefiting special interests. Using a spatial equilibrium model, I show that less elastic housing supplies increase governments' abilities to extract rents. Inelastic housing supply, driven by exogenous variation in local topography, raises local governments' tax revenues and causes citizens to combat rent seeking by enacting laws limiting the power of elected officials. I find that public sector workers, one of the largest government special interests, capture a share of these rents through increased compensation when collective bargaining is legal or through corruption when collective bargaining is outlawed.Citation
Diamond, Rebecca. 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments." American Economic Journal: Economic Policy, 9 (1): 74-111. DOI: 10.1257/pol.20150320Additional Materials
JEL Classification
- H71 State and Local Taxation, Subsidies, and Revenue
- H72 State and Local Budget and Expenditures
- J45 Public Sector Labor Markets
- J52 Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining
- R31 Housing Supply and Markets
- R51 Finance in Urban and Rural Economies
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