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Housing Supply Elasticity and Rent Extraction by State and Local Governments

Rebecca Diamond

American Economic Journal: Economic Policy, 2017, vol. 9, issue 1, 74-111

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.

JEL-codes: H71 H72 J45 J52 R31 R51 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/pol.20150320
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Working Paper: Housing Supply Elasticity and Rent Extraction by State and Local Governments (2015) Downloads
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Handle: RePEc:aea:aejpol:v:9:y:2017:i:1:p:74-111